The Effect of Foreign Direct Investment on the Economic Development of Mongolia

1. Introduction

Foreign direct investment is generally seemed as a way through which technology can spread from developed countries to developing ones. Although the evidence of relationship of foreign direct investment(FDI) with economic growth is not clear, several studies agree that absorptive capacity of host country does an important role of explaining FDI. For instance, it is stated that FDI is positively related and significant only for higher income countries and has no impact in lower income countries. And it is asserted that contribution of FDI for economic growth is determined by its interaction to the human capital level in host country. Mungunzul and Chang (2016) showed that FDI does a different role in growth procedure because of differing trade policy regimes. Even though there are different shapes of overseas capital flows, FDI has been research topics. FDI is an investment done abroad through establishing a new company in host country or through acquiring shares to have full managerial power of existing foreign company.

This paper’s goal is to determine the factors affecting the FDI flows into Mongolia through answering the following questions: Firstly, how FDI influences on economic development of Mongolia. Secondly, which factors can be identified with regard to FDI. Thirdly, what recommendations could be applied to induce FDI flows into the country.