Economic Impacts of the Government Investment Policy: Dynamic CGE Model

Economic Impacts of the Government Investment Policy: Dynamic CGE Model

Tsenguunjav Byambasuren (Bank of Mongolia, Ulaanbaatar, Mongolia), Avralt-Od Purevjav (Cornell University, Ithaca, NY, USA) and Erdenetungalag Erdenekhuyag (Institute of Finance and Economics, Ulaanbaatar, Mongolia)
Copyright: © 2015 |Pages: 23
DOI: 10.4018/IJSDA.2015010104

Abstract

The abundant natural resources can bring either positive or negative impact to the country's economy depending on the macroeconomic policies. Mongolia has massive mineral resource dominated by coal, copper, and gold. The Government of Mongolia has started to implement a number of infrastructure projects to decrease the mining project's cost burden caused from the country's weak infrastructure. This paper aims to assess the economic impact of the government investment policy towards the mining sector. In order to investigate the alternative options of the government investment policy, it uses a simulation analysis using the Dynamic Computable General Equilibrium (CGE) model which is developed for Mongolian economy. In the empirical analysis, this paper considers following two policy scenarios: Power plant and Copper refinery. The results suggest that both the policy scenarios have positive impact on the domestic economy, of which making the investment to power plant is the better option for the policy makers.
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As an abundant natural resourced country, economic diversification is one of the major factors to avoid the resource curse in Mongolia. In this section, we will discuss the approaches of government investment policy, country cases, and empirical methods that used widely to evaluate the economic impacts.

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