Manufacturing in a Small Natural Resource Abundant Economy: Evidence from Mongolia

We argue that the extreme dependence on the natural resource sector has affecteda part of the Mongolian economy negatively, thus causing the manufacturingsector to decline. This phenomenon, or the so-called Dutch Disease hypothesiswere tested, and the results are supportive of the argument. We found a long-runnegative relationship between the growing resource sector and manufacturing:a ten-percent increase in the resource sector brings a two-percent decrease inmanufacturing in Mongolia.