Mongolia: The Question of Poverty Amidst Socioeconomic Growth | Kefa Kabanga

The paper delves into the background of Mongolia, considering its history, geography, and political economy to find a theoretical connection between its high (and increasing) poverty rates and the phenomenal growth in socio-economic indicators ranging from the Gross Domestic Product (GDP) to the Human Development Index (HDI). Through an analysis of relevant literature and an evaluation of the principal theories of development economics, this paper explores the roles of employment on GDP, as well as that of dzuds (severe winter storms), and discusses the resilience of poverty despite strong economic growth. The paper arrives at the conclusion that Dualistic Development Theory (as articulated by Singer (1950)) best encapsulates Mongolia’s woes, mainly due to a failure of Foreign Direct Investment (FDI) to become entrenched in the economy. This broadly explains why GDP grows (due to highly productive capital intensive FDI) while unemployment and poverty also grow (due to labor saving capital intensive FDI). Finding that Mongolia’s FDI sector is tailored to benefit the source of the FDI rather than the denizens of the country, this investigation further asserts the that dzuds are unique hurdles that disincentivize domestic saving and investment, regularly vanquish assets, negatively influence migration patterns, and place overwhelming binding constraints on Mongolia. This paper concludes with policy prescriptions for using FDI as source of pro-poor growth through establishing stronger linkages with the economy, establishing joint ventures and public private partnerships, developing complementary domestic industries, diversifying Mongolia’s exports and de-emphasizing mineral extraction, all the while placing enormous emphasis on rural enrichment and integration along with dzud mitigation stratagems.

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