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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Abstract-In Mongolia, the mining sector has been upgraded and developed very sharply last few years and some international experts stated that this growth will be hold up related to the strategic deposits such as Oyu tolgoi, Tavan tolgoi. It shows that Mongolia will become more relative to the foreign economy in the further. So, this paper tries to examine whether the real exchange rate and the real price of commodity exports move together over time in case of Mongolia. In this paper, we used the Engle and Granger (1987) co-integration approach to assess the long-run relationships between two variables and according to empirical results, the increase in price of Mongolian commodity exports appreciates the domestic real exchange rate. Also, the average half-life of adjustment of real exchange rates to commodity price is found to be about six months.

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