Policy Challenge of Resource-Rich Developing Countries: Case of Mongolia

This paper evaluates whether natural resource exports revenue of Mongolia reduces the interest rate spread using single-sector model and studies the cases that decreased their interest rate spread successfully. The results suggest that the difference in quality of natural resource’s expenditure is the key factor of developing stable economy. As witnessed by the examples of Botswana and Sierra Leone, natural wealth can become both of a blessing or a curse depending on the effectiveness of economic and political policies. In other words, if Mongolia spend its resource revenue ineffectively, we will lose our fame in the international market and it leads us to be pegged with high interest rate. Finally, we suggest some policy recommendations for optimal spending of the windfall revenue based on our result.