**Table 10. Industries’ Contribution to Real Growth in Mongolia** (in percentage points)

||**1996**|**1997**|**1998**|**1999**|**2000**|**2001**|**2002**|**2003**|**2004**|**2005**|
|---|---|---|---|---|---|---|---|---|---|---|
|Agriculture|1.2|1.6|2.5|1.7|-6.2|-6.2|-3.5|1.1|4.1|1.9|
|Industry|-1.7|-0.9|0.9|0.0|-0.2|3.7|0.4|1.6|4.0|-0.1|
|Manufacturing|-2.4|-1.4|0.3|-0.5|-0.4|2.2|1.2|0.7|-0.1|-2.2|
|Mining|0.6|0.6|0.6|0.5|0.6|1.2|-1.2|-0.3|4.1|1.7|
|Construction|0.1|-0.1|0.0|0.0|-0.4|0.3|0.4|1.2|0.0|0.4|
|Services|1.6|3.2|-0.1|-0.1|3.4|1.5|6.0|3.1|1.5|4.3|
|Utilities|-0.8|-0.1|0.1|0.1|0.2|0.4|0.2|0.0|0.1|0.1|
|Transport|0.5|0.0|0.6|0.0|1.2|1.4|2.0|1.5|1.8|-0.3|
|Trade|0.3|3.2|-1.2|-1.6|1.3|0.1|2.7|1.4|-0.7|4.3|
|Other services|1.6|0.1|0.4|1.4|0.7|-0.3|1.1|0.2|0.3|0.3|

_Source: Staff estimates based on data from World Bank (LDB)._

**Table 11. Industry Composition of Total Value-added in Mongolia** (at constant producer <u>prices)</u>

|**Shares in:**|**1996**|**1997**|**1998**|**1999**|**2000**|**2001**|**2002**|**2003**|**2004**|**2005**|
|---|---|---|---|---|---|---|---|---|---|---|
|Agriculture|36.4|36.6|37.8|38.8|33.6|27.7|23.6|23.4|25.1|25.5|
|Industry|22.1|20.4|20.6|20.3|20.8|24.7|24.3|24.5|26.1|24.4|
|Manufacturing|7.8|6.1|6.3|5.6|5.4|7.7|8.6|8.8|8.0|5.4|
|Mining|11.5|11.7|11.9|12.2|13.2|14.5|12.9|11.9|14.6|15.3|
|Construction|2.8|2.6|2.5|2.5|2.2|2.5|2.8|3.8|3.5|3.6|
|Services|41.5|43.1|41.6|40.9|45.6|47.6|52.1|52.1|48.9|50.1|
|Utilities|2.8|2.6|2.6|2.7|3.0|3.4|3.5|3.2|3.1|2.9|
|Transport|8.2|7.8|8.1|8.0|9.5|11.0|12.6|13.4|13.9|12.8|
|Trade|12.9|15.5|13.8|12.1|13.7|13.9|16.1|16.6|14.4|17.7|
|Other services|17.7|17.1|17.0|18.1|19.4|19.3|19.8|18.9|17.5|16.7|

Source: World Bank, LDB Note: Agriculture is dominated by livestock herding.

These trends reflect favorable commodity prices and declining prices of manufactured goods, and suggest that Mongolia has grown successfully by increasing its specialization in products in which it has a comparative advantage.<sup>34</sup> But as a result: (i) Mongolia’s economy has become more vulnerable to terms-of-trade shocks, natural disasters and environmental degradation; (ii) Mongolian manufacturing firms are now less internationally competitive, and (iii) Mongolia uses its scare resource—labor<sup>35</sup> —rather inefficiently. Indeed, Mongolia’s share in world manufactured exports has declined, and except in mining,<sup>36</sup> its value added per worker is rather low (Figure 8), primarily since agriculture employs 40 percent of the country’s labor force, while it contributes only 25 percent of the total value added. Not surprisingly, the highly capital-intensive mining sector posts significantly higher value-added per worker. Some may also consider these symptoms to characterize a “Dutch Disease” phenomenon.

> 34 Mongolia’s vast mineral wealth includes over 6000 known mineral deposits of 80 different minerals and Mongolia’s mining sector is viewed as the engine of growth.

> 35 Mongolia is one of the largest landlocked countries in the world with a population of just 2.5 million.

> 36 Labor productivity in the mining sector would be considerably lower if we include the output of artisanal miners.

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