# **Contents**

|Contents ........................................................................................................................................................ 1|
|---|
|I.<br>Introduction ........................................................................................................................................... 1|
|II.<br>Model framework .................................................................................................................................. 5|
|Baseline scaling-up scenario: Mining output doubles and the mining sector is fully integrated into the<br>economy .................................................................................................................................................... 6|
|Reference scenario: Mining output doubles but mining sector is not integrated into the economy, i.e., is<br>an enclave sector ....................................................................................................................................... 7|
|III.<br>Transmission Mechanisms Leading to Dutch-Disease Effects ......................................................... 9|
|The role of domestic production factors in the scaling-up of mining production ..................................... 9|
|a)<br>Using only intermediate inputs as domestic production inputs ..................................................... 9|
|b)<br>Using only labor as domestic production factor ......................................................................... 13|
|c)<br>Using only capital as domestic input .......................................................................................... 16|
|d)<br>Combined effect of domestic inputs ........................................................................................... 18|
|The role of domestic spending of mining receipts in the scaling-up of mining production .................... 20|
|a)<br>Government spending of mining receipts ................................................................................... 20|
|Spending additional government revenues on public consumption ................................................ 22|
|Spending additional government revenues on tax reductions ......................................................... 23|
|Spending additional government revenues on public investment ................................................... 24|
|<br>b)<br>Private sector spending of dividends from the mining sector ..................................................... 25|
|IV.<br>Lessons ............................................................................................................................................ 29|
|Complexity of the transmission channels ........................................................................................... 29|
|Equilibrium outcomes ......................................................................................................................... 29|
|Policy implications .............................................................................................................................. 30|
|Appendix A: Mongolia Social Accounting Matrix ................................................................................. 34|
|Appendix B: Macro Indicators in the BASE (Business-As-Usual) case. .............................................. 35|
|Appendix C: Macro indicators in the baseline (mining sector doubles in size) ...................................... 36|

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