Impacts Of Foreign Direct Investment On Economic Growth In Mongolia

For developing countries,FDI has become the largest source of external finance and is playing an increasingly important role in the economic growth of host countries,through skill transfer,innovation,productivity enhancement,access to foreign markets,and the creation of better paying and more stable jobs,in sectors attracting FDI as well as sectors attracting FDI.To a small economy like Mongolia,FDI is a key catalyst in promoting economic growth.The economy of Mongolia,country rich in natural resources,is increasingly dependent upon the mining sector.Since reaching a peak in 2011,FDI in Mongolia has been declining and Government of Mongolia has adopted new policies that drive the motive to attract more FDI inflows.The purpose of my study is to empirically investigate the relationship between FDI and economic growth in Mongolia over the period 2011-2017.This study attempts to determine the empirical impact of FDI on economic growth using specific sector such as Mining,Financial and Construction sector?s data for FDI inflows to the country.Labor force,exports of goods and services and natural resource rents are considered as the control variables.For the purpose of inference,I used classical linear regression model.The ordinary least squares(OLS)methods are used for estimation.However,when estimating for the different growth performance across sectors,the result of my study show that the composition of FDI matters for its effect on economic growth with FDI inflow in Financial and Construction sector showing the positive impact and it is insignificant.On the other hand,FDI in Mining showing the negative impact of economic growth and it is statistically significant.Other control variables,Labor force has highly positive impact and Export has also positive impact on economic growth in Mongolia.Finally,based on the results conducted during my study,I prepared some recommendations.For instance,Government of Mongolia should promote diversification of the economy and FDI inflow into sector and attract more investment in non-mining sectors.