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Policy Challenge and Single-Sector Growth Model Application of Resource-Rich Developing Countries: Case of Mongolia

Byambasuren, Tsenguunjav and Erdenebold, Uranzaya and Otgonbayar, Baasansuren (2013): Policy Challenge and Single-Sector Growth Model Application of Resource-Rich Developing Countries: Case of Mongolia.

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Abstract

This paper evaluates whether natural resource export revenue of Mongolia reduces the interest rate spread using single-sector model and studies the cases that decreased their interest rate spread successfully. The results suggest that the difference in the quality of natural resource’s expenditure is the key factor of developing stable economy. As witnessed by the examples of Botswana and Sierra Leone, natural wealth can become both of a blessing or a curse depending on the effectiveness of economic and political policies. In other words, if Mongolia spends its resource revenue ineffectively, its fame on the international market will be lost and leads to be pegged with high interest rate. Finally, the paper suggests some policy recommendations for the optimal spending of the windfall revenue based on the result.

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