Optimizing the Structure of Mongolian Foreign Trade and the Alternative Policy of Successful Transition

Byambasuren, Tsenguunjav and Gochoo, Munkh-Erdene (2015): Optimizing the Structure of Mongolian Foreign Trade and the Alternative Policy of Successful Transition.

Abstract

This paper aims to make an alternative development policy which can encourage the foreign trade efficiency. In order to make the policy, the current situation of Mongolian Foreign Trade has been determined and invented the product sectors that have a chance to be developed for the further. In this paper, several methods such as Revealed Comparative Advantage (RCA) method, Product Space Analysis or Monkey and Tree Model, Opportunity Index, and Gravity Model have been used to make analysis. The paper illustrates that firstly, Mongolian Foreign Trade has been becoming more dependent from a single country, a single product and there is no structural shift. In other words, the most part of Mongolian export goods consist of the products that have low sophistication level and low value added, and based on natural resources. Also, the diversification of export goods basket is poor and even no unique products are included in the basket. Therefore, this paper suggests an alternative development policy based on Hidalgo, Ricardo Hausmann, and Bailey Klinger’s policy recommendations and foreign trade policy experience of China whose economic performance was the best in the world last 30 years.

• Item Type: MPRA Paper
• Language: English
• Keywords: Revealed Comparative Advantage (RCA), Product space model, Structural transformation
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C55 - Large Data Sets: Modeling and Analysis; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission

References

[1] Balassa, B. (1965). Trade Liberalisation and “Revealed” Comparative Advantage1. The Manchester School, 33(2), 99-123.

[2] Bergstrand, J. H. (1985). The gravity equation in international trade: some microeconomic foundations and empirical evidence. The review of economics and statistics, 474-481.

[3] Bougheas, S., Demetriades, P. O., & Morgenroth, E. L. (1999). Infrastructure, transport costs and trade. Journal of International Economics, 47(1), 169-189.

[4] Breuss, F., & Egger, P. (1999). How reliable are estimations of East-West trade potentials based on cross-section gravity analyses?. Empirica, 26(2), 81-94.

[5] Chen, I. H., & Wall, H. J. (1999). Controlling for Heterogeneity in gravity models of trade. Federal Reserve Bank of St. Louis Working Paper, 1.

[6] Commonwealth of Australia. (1995). Reform of China's Foreign Trade Policy. Sydney: Department of the Parliamentary Library.

[7] Egger, P. (2000). A note on the proper econometric specification of the gravity equation. Economics Letters, 66(1), 25-31.

[8] Felipe, J., Kumar, U., & Abdon`, A. (2010). As You Sow So Shall You Reap: From Capabilities to Opportunities. Manila: Asian Development Bank.

[9] Hausmann, R., & Klinger, B. (2006). Structural Transformation and Patterns of Comparative Advantage in the Product Space. Harvard College.

[10] Hausmann, R., & Klinger, B. (2007). Structural Transformation in Chile.

[11] Hausmann, R., & Klinger, B. (2009). Policies for Achieving Structural Transformation in the Carribean. IDB.

[12] Helpman, E. (1987). Imperfect competition and international trade: Evidence from fourteen industrial countries. Journal of the Japanese and international economies, 1(1), 62-81.

[13] Lim, K.-T. (1997). Analysis of North Korea's Foriegn Trade by Revealed Comparative Advantages. Journal of Economic Development.

[14] Long, G. (2010). China's Sustainable Trade Strategy: An Overview. Beijing: IISD.

[15] Martin, W. (2001). Trade Policies, Developing Countries, and Globalization.

[16] Martinez-Zarzoso, I. (2003). Gravity Model: An Application to Trade Between Regional Blocs. Atlantic Econ, 174-187.

[17] Martinez-Zarzoso, I., & Nowak-Lehmann, F. (2003). Augmented Gravity Model: Am Empirical Application to Mercosur-European Union Trade Flows.

[18] Martinez-Zarzoso, I., & Nowak-Lehmann, F. (2003). Augmented Gravity Model: Am Empirical Application to Mercosur-European Union Trade Flows. Journal of Applied Economics, 291-316.

[19] Mátyás, L. (1997). Proper econometric specification of the gravity model. The world economy, 20(3), 363-368.

[20] Parsley, D. C., & Wei, S. J. (1996). Convergence to the law of one price without trade barriers or currency fluctuations. The Quarterly Journal of Economics, 111(4), 1211-1236.

[21] Paul, R. Krugman; Maurice, Obstfeld;. (2007). International Trade Theory. In International Economics Theory & Policy (8th edn ed., p. pp. 12).

[22] Paul, R. Krugman; Maurice, Obstfeld;. (2007). Trade Policy in Developing Countries. In International Economics Theory & Policy (8th edn. ed., p. pp. 250).

[23] Pöyhönen, P. (1963). A tentative model for the volume of trade between countries. Weltwirtschaftliches Archiv, 93-100.

[24] Soloaga, I., & Winters, L. A. (1999). How has Regionalism in the 1990s affected trade?. Research Working papers, 1(1), 1-28.

[25] Tinbergen, J. (1962). Shaping the world economy; suggestions for an international economic policy.

[26] Venables, A. J., & Limao, N. (1999). Geographical disadvantage: A Heckscher-Ohlin-von Thunen model of international specialization (No. 2305). World Bank-free PDF.