Foreign Direct Investment in a Transition Economy: Lessons from the Experience of Mongolia

Abstract

This article presents an analysis of the trends and patterns of foreign direct investment (FDI) in Mongolia, a former centrally planned economy which embarked on economic reforms in 1990. Since then, there has been a dramatic increase in FDI inflow into the country. The volume of FDI rose from less than one per cent of GDP in 1991 to 80 per cent by 2010. These foreign-owned enterprises have made a significant contribution to the country’s export earnings, but their effects on employment-creation and hence poverty-reduction remains very small. This appears to be largely due to a heavy concentration of foreign firms in relatively capital-intensive mining sectors rather than labour-intensive light manufacturing. Further, there is evidence to support growing business confidence that Mongolia has a potential of FDI to become a major player in global commodity markets with its rich gold, copper, zinc, uranium, coal, molybdenum and oil reserves.