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Topic :   Economic, Business and Development  
The development of the Oyu Tolgoi copper mine: an assessment of the macroeconomic consequences for Mongolia PDF Print E-mail
Mongolia is a vast, resource abundant country located between China and Russia. The formal economy is relatively small with GDP in 2009 of US$4.2 billion but growing quickly with an annual average real GDP growth from 2003 to 2008 of nearly 9 per cent. The country has relatively low living standards with a GDP per person of US$1,560 in 2009. Since the early 2000s, the Mongolian economy has become more dependent on the mining sector for GDP growth, exports, and fiscal revenues with copper, gold, coal, molybdenum, fluorspar and zinc being the major commodities.
In 2009, the Government of Mongolia signed an investment agreement covering the construction and operation of a coppergold mine at Oyu Tolgoi in southeastern Mongolia near the border with China. Oyu Tolgoi is the largest known undeveloped copper deposit in the world with a mineral reserve of 1,393 Mt of ore grading 0.93 per cent copper and 0.37 g/t of gold. Its development is projected to have significant and long-term impacts in the South Gobi region and the Mongolian economy more generally.
In light of the negative historical experiences of some developing countries following the exploitation of abundant natural resources and the extensive literature on the so-called ‘resources curse’, Rio Tinto decided to sponsor a professionally independent economic impact assessment of the Oyu Tolgoi project on the Mongolian economy. This work was carried out by the School of Economic Studies of the National University of Mongolia in collaboration with the Australian applied economics consulting firm, BAEconomics Pty Ltd. The impacts on key Mongolian macro economic variables arising from the development of Oyu Tolgoi are projected and discussed in this assessment. The key variables of interest include: GDP and GNP; the exchange rate; wages; fiscal revenues; exports and imports; and sectoral output. A key focus of the assessment is on alternatives uses of government revenue generated by the project.
The analytical framework used in this assessment is BAE’s general equilibrium model of the world economy, MINCGEM. The impacts of Oyu Tolgoi are projected by comparing economic outcomes in the reference case (a hypothetical global economy in which Oyu Tolgoi is economic impact assessment – Oyu Tolgoi not developed) to a number of alternative policy scenarios in which Oyu Tolgoi is developed. The assessment is conducted over the period 2010 to 2043, that is, covering the first 30 years of the mine’s production life.
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Author : School of Economic Studies
Source : National University of Mongolia
Topic :   Economic, Business and Development  
File type : PDF
Year : 2012
Keyword : industrial park, infrastructure, inflation and monetary policy, economic impact assessment – Oyu Tolgoi, inflation, exchange rate, international trade, the financial sector, the financial crisis and the banking sector, financial sector regulation and restructuring, poverty, non-income based measures of poverty, the impact of mining sector growth on economic development, the role of economic policies, dutch disease, revenue volatility and borrowing, other policy failures, political-economic explanations, country case studies, policy recommendations, fiscal and monetary policy, economic diversity, the Oyu Tolgoi copper project, analytical framework, economic assessment methodology, the assessment model, factors of production, income, savings and consumption, producer behaviour, international trade, prices, exchange rates, the characteristics of the reference case, population and labour supply, economic growth, economic impact assessment – Oyu Tolgoi, Mongolian savings rate, Mongolian sectoral output, Mongolian mining production, world commodity prices,

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