Academic journal article International Journal of Economic Development

The Transition to a Market Economy: Mongolia 1990-1998 (1)

Academic journal article International Journal of Economic Development

The Transition to a Market Economy: Mongolia 1990-1998 (1)

Article excerpt

Abstract

This paper examines Mongolia's experience of transition from a centrally planned to a market economy. Its objectives are to relate this experience to the economic and historical conditions which Mongolia faced in 1990, to describe the chief features of the immediate transition, to discuss the liberalisation and privatisation programmes which constituted the core of the reforms, and finally, to identify the problems which have delayed recovery and imposed further costs on the Mongolian people. The central argument of the paper is that the Mongolian authorities have placed too great an emphasis on conventional stabilisation and re-structuring packages and too little attention has been paid to the legal, institutional and historical constraints on the rapid movement to the market.

Introduction

Although the transition from a centrally planned to a market economy is a worldwide phenomenon with a number of common features there has been a wide variability in the impact of this process in different countries. The particular experience of transition is a function of historical background, economic endowment and the way these have interacted with country specific shocks and the policy decisions with which transition has been implemented.

The objective of this paper is to consider Mongolia's transition from a centrally planned to a free market economy within its particular historical and economic circumstances. The paper provides a brief overview of Mongolia's characteristics and of its pre-1990 development. It reviews some of the key elements of Mongolia's actual experience of transition and highlights some of the problems, both theoretical and practical, which have been encountered during this process.

Mongolia: An Overview

Mongolia is a landlocked country in northern continental Asia bordering on the Russian Federation to the north and the People's Republic of China on the east, west and south. It has a land area of 1.6 million square kilometres, making it the fifth largest country in Asia and the seventeenth in the world. Mongolia had a population of 2.32 million people in 1995, giving it a population density of 1.5 persons per square kilometre, one of the lowest population densities in the world. The capital city, Ulaanbaatar, located in the north central part of the country, accounts for 25 per cent of the population, with other urban centres accounting for a further 25 per cent. Mongolia's transport and communications systems are poorly developed and this has exacerbated Mongolia's relative isolation from the global economy until recent years.

Although the economy developed a significant industrial sector during the period of central planning, the agricultural sector remains the backbone of the economy. It is estimated that 80 per cent of the total land area is suitable for agriculture in the broadest sense (UNDP, 1996) but only 1.5 per cent of this is used for crops, 1.0 per cent is mowed for hay and 97 per cent is used for pasture. Mongolia remains a largely pastoral society with animal husbandry the main economic activity.

There are important links between the agricultural and industrial sectors, with agriculture providing the inputs to many processing and manufacturing activities, including leather and shoe manufacture, wool processing, cashmere production and milk and bread production. Mongolia has rich mineral reserves, including copper, coal, molybdenum, fluorite, gold, iron ore, lead, phosphate, tin and oil and oil shale. Large deposits of graphite, construction and industrial materials (marble, gypsum, limestone, granite, quartz sands and others) have also been discovered. The economic viability of developing much of this natural wealth is, however, yet to be established (UNDP, 1996). Copper concentrate and animal products (especially sheep and goat skins) dominate exports although there has been a dramatic increase in gold exports in the last three years; in 1997 they amounted to 24 per cent of exports (BOM annual report, 1997). …

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