The Effectiveness Of Mongolia's "Third Neighbor" Policy: Evidence From Trade Data

Abstract

Landlocked countries have a severe disadvantage as they have to rely on their neighbors for access to trade routes. Mongolia has only China and Russia as neighbors and while the booming economies of these emerging countries have offered some benefits, the country has been trying to foster relations with "third neighbor" nations as well. This paper uses a gravity framework to assess the success of the "Third Neighbor" policy over the period 1992-2014. In particular, I use trade data to estimate Mongolia's border effects with its two large neighbors and compare these to the trade hurdles between Mongolia and five other countries. The results show that Mongolia's border effects with China and Russia are much lower than for any other country, even after controlling for distance and contiguity. Among other countries, only Korea has border effects that are close to those by Mongolia's two neighbors. My findings suggest that Mongolia has not been very effective in expanding its trade relations with third neighbors and is likely to experience a slowdown as China's growth rates are in decline.