CAREC Institute Policy Brief Examines Mongolia’s Capacity to Absorb Foreign Investment

The CAREC Institute has published a policy brief On Foreign Investment Absorption Capacity in Mongolia: A Macroeconomic Assessment, which examines why large foreign investment inflows in Mongolia have not been translated into sustained productivity growth or economic diversification.

According to the brief, about 75% of Mongolia’s foreign direct investment inflows are attracted to the mining sector. Investment in the sector has supported periods of rapid growth, but volatile inflows have also been associated with sharp economic swings, with limited benefits for other sectors of the economy. The analysis points to procyclical fiscal policy, limited efficiency of public investment, shortages of skilled labor, weak technology transfer, weak institutions and a shallow financial sector as key constraints.

To address these constraints, the brief recommends stronger fiscal rules and public investment management, training that better matches industry needs, and greater support for domestic suppliers and non-mining sectors. It also calls for more credible institutions and regulations to help translate investment into productivity growth and diversification.