Chapter 1 Introduction
1.1 Background and problem statement
Mongolia, a land-locked developing country has friendly diplomaticrelationship with over 180 countries and it has been 27 years since Mongoliabecame a democracy with a market economy. The geographic location ofMongolia is not favorable for international trade. For instance, the nearestseaport which is Tianjin in China is located 1723 kilometers away fromMongolia[ 1 ]. Mongolia is wealthy in natural resource. The economy of thiscountry grows into constantly reliant on the mining and its share stands abou t20% of Mongolia’s gross domestic product (GDP). Moreover, the most revenueof Mongolia earns from mining sector which produces major export products onexternal trade. The structure of Mongolian trade seems different fromneighboring two countries which is China and Russia. Mongolian economy hastoo unique and challenging macroeconomic issues. Being landlocked, smallopen economy relying on export of raw goods exports to drive its economicgrowth and development. Besides, for last decade, Mongolia’s foreign tradebalance has been reached surplus on annual year statistical report because of theglobal copper price, price-cutting of import and fuel in 2014 and 2015.However, it was deficit during the most period 2006-2014. It shows thatMongolia’s trade sector has faced some challenges and difficulties. It indicatesthat the policy makers and researchers should keep on eye and improve tradepolicy of Mongolia. In addition, gravity model analysis is newly issued researchin international trade pattern and there is very few studies, applied a gravitymodel in Mongolia’s case. This study will be very significant to foreign tradesector of Mongolia.
.........
1.2 Objectives and Significance of this study
The main objective of this empirical study is to analyze foreign trade ofMongolia with its five main trading countries including, People’s Republic ofChina, Russian Federation, United States of America, Japan and Republic ofKorea. Based on the panel data, a gravity model approach will be applied toinvestigate the factors influence to Mongolia’s external trade with its toptrading partners and to estimate bilateral potential trade through data coveringthe period 1995-2015. There are main three goals were described as follow:(1) To find out the relevant factors to external trade of Mongolia and its toptrading partnersThis goal will answer the question that which factors influence tobilateral trade between Mongolia and its top trading partners positivelyor negatively?(2) To estimate the potential trade between Mongolia and top tradingpartners and to examine the difference between potential and actual tradeof Mongolia and its top trading partnersIt would be responded the question that which country’s trade withMongolia is overused or underuse?(3) To make recommendations to guide policy makers and researchers basedon the estimated results of this empirical researchThe findings of this study will help the policy makers and researchers toobtain the clear view of Mongolia’s trade improvements and to undertakethe appropriate measures to develop the performance of the foreign tradesector.
.........
Chapter 2 Foreign trade overview of Mongolia
2.1 Current overview of Mongolian foreign trade
Mongolia is a land-locked and North-East Asian country bordering Russiaand China. The economy is generally depend on breeding livestock, agricultureand mining sectors. The main minerals extracted are copper, gold, coal andsome others. These are the main components of the Mongolian export s. Duringthe pre-1990 period, export of Mongolian products was very limited. Since1990, the Mongolian economy has been transferred into an open and favorableenvironment for competitiveness and practice in the free market for tradinggoods and services.The economic rise of the country has been durable in recent years. Ingeneral, Mongolia’s international economic relationship and cooperationconsists of investment, loan and foreign trade which was focused in thisresearch. Mongolia who used to have communist regime joined the World TradeOrganization in 1997. Since then, Mongolia has adopted laws and regulations tobring its legislation in line with the WTO rules. Ongoing average bound quotaof Mongolia’s tariffs is 17.3% and it used rate is maintained at 5% for almostall goods. Mongolia has no commitments on tariff quotas, domestic support, orexport subsidies for agricultural products. Today Mongolia is pursuing acomparably liberal trade policy. The Mongolian economy is massively relianton external trade and 37.1% of its GDP is accounted for by exports.According to Mongolian statistical year book 2016, Mongolia has tradedwith 157 countries from all over the world but few countries such as China,Russia, Japan, USA and South Korea that were named as main partners play thehighest role for Mongolian foreign trade activity. Specially, China, southneighbor has been configuring most part of external trade. For instance, the 68%of total trade flow of Mongolia was belonging to China and 11.9% of trade wasto Russian Federation on the performance of February 2017 respectively[33].
..........
2.2 Mongolia’s trade with top trading partners
At present, Mongolia is succesfully developing friendly relations,cooperation and trade with its top trading partner countries such as People’sRepublic of China, Russian Republic, United States of America, Japan andRepublic of Korea. Especially, enhancing its relationship with its two neighborsChina and Russia is a priority in Mongolia’s foreign policy that is an open andnon-aligned. Mongolian external trade that is compared with its gross domesticproduct value plays a important role in the country’s economy. However,Mongolia traded with above 150 countries of the world and approached totaltrade turnover to 8466.8 million US$ in 2015, there are only few countries suchas China, Russia, USA, Republic of Korea, and Japan which was named main trading partners of Mongolia, has taken high percentage (80%) of total externaltrade. In contrast, Mongolia has 0.02-0.03% in export and 0.0005-0.2% inimport of those commercial partner countries’ trade pattern.
..........
Chapter 3 Hypothesis and theoretical framework .......... 33
3.1 Theoretical foundation .......... 33
3.2 Factors influencing bilateral trade ....... 34
3.2.1 Gross domestic product and population ...... 34
3.2.2 Exchange rate ......... 36
3.2.3 Distance between two countries .......... 37
3.2.4 Strategic partnership ...... 38
3.3 Hypothesis development ....... 39
3.4 Theoretical framework .......... 40
3.5 Summary of chapter ....... 40
Chapter 4 Research methodology ........ 41
4.1 Research model and design .......... 41
4.2 Research variables ......... 42
4.3 Sampling and data collection ........ 43
4.4 Data processing ...... 50
4.5 Summary of chapter ....... 50
Chapter 5 Results and Discussion ....... 51
5.1 Results...... 515
5.2 Hypothesis testing and Discussion....... 58
5.3 Suggestion and recommendation ......... 60
5.4 Summary of chapter ....... 61
Chapter 5 Results and Discussion
5.1 Results
According to hypotheses on chapter two, the independent variables of thisempirical study are gross domestic product (GDP), population, exchange rateand strategic partnership and common border status of Mongolia and its toptrading partners including, China, Russia, United States, Japan and South Korea.The dependent variable of this research is annual trade (export plus import) ofMongolia and trading partner countries.Dependent variable (Tijt) is annual trade (exports plus imports) ofMongolia and trading partners. The data for this variable are obtained fromInternational Trade Centre (ITC) the period from 1995 to 2015.Gross domestic product of Mongolia and partner countries (GDPij)are usedas measure of economic size. These two variables are expected to have positiv eimpact on the trade promotion according to research hypothesis.Population (Popjt) is applied to calculate the market size of each countrywhich is a factor affecting to international trade. The larger the market the moreit trades, so the market size is expected to turn out with positive sign accordingto research hypothesis.Exchange rate (EXijt) has helped to describe the trade persity amongparticipating countries. Exchange rate variable is expected to have a positiveeffect on trade between Mongolia and the partners according to researchhypothesis.Distance (Dij) represents transportation cost when two countries joiningin international trade pattern. It is calculated in kilometers from Ulaanbaatar,the capital of Mongolia, to the capitals of other countries. This variable isexpected a negative sign on bilateral trade, due to transportation cost should becorresponding to distance between Mongolia and its trading partners.
.........
conclusion
A panel data set was used for the estimation process of this empiricalresearch. Panel data can be of two types which are balanced and unbalancedpanel. Unbalanced panel implies that some observations are missing[61]. In ourcase, balanced panel where there is one observation for each country,respectively, each moment was applied. Panel data set contains bilateral tradeflows, GDPs of the countries, population of partner countries, exchange rateand distance of Mongolia and main trading partners including China, Russia,United States Japan and South Korea for the period from 1995 to 2015. Thetotal variables’ number of this study are 8 according to the gravity modelequation. (see equation 5) Data of GDP, bilateral trade value, which areexpressed by US dollars were collected from World bank and InternationalTrade Centre’s databases. Distance between two countries was taken from theinternet source which is retrieved from www.timeandate.com. Dummy variables,strategic partnership and common border status’s data was collected fromwebsite (retrieved from www.mfa.gov.mn) of Ministry of Foreign AffairsMongolia. Variables data of the exchange rate value and population of tradingpartners were gathered from database of World bank. All of balanced panel dataset was shown the below tables according to the research variables.
..........
References (abbreviated)