Abstract:
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Developing countries would like to attract foreign investment for the many
benefits it provides, such as the adoption of high technology, increased employment,
and expanded exports. Without effective usage of foreign investment inflows,
however, foreign investment also brings side effects (e.g., environmental damage).
Good foreign investment policy and its effective implementation could increase the
benefits and decrease the side effects of foreign investment in the host country.
In Mongolia, foreign investment inflow has been increased a lot fast,
especially in the last decades. As a result of the promotion policy implemented from
1993 to resent years, the percentage of foreign investment in the GDP has rapidly
increased. According to the statistics, foreign direct investment in the country covers
almost 40% of the GDP and 65% of total investment in the country after two decades.
However, compared with other countries in the region, Mongolia remains the lowest
recipient of foreign investment inflow. Also, the majority of foreign investment is
invested only in the mining sector, which does not promote long-term sustainability of
economic development. Moreover, foreign investment inflow has been dramatically
decreased in the last two years because of frequent changes that have occurred with
foreign investment laws and standards; it dropped respectively by 22% and 51% in
the years 2012 and 2013 compared with previous years.
This research aims to analyse the factors affecting foreign investment policy
implementation effectiveness in Mongolia based on foreign investors’ perceptions. The study is important given the practical benefits that the Mongolian government can
realise by improving the country’s foreign investment policy.
Data were collected through mail surveys and telephone interviews and
analysed using a variety of methods, including descriptive, correlation, and regression
analysis. Three sets of 13 independent factors that determine foreign investment
policy implementation effectiveness were considered in this study. The findings of
this study suggest that foreign investment policy would be implemented effectively
and foreign investors would be satisfied with foreign investment policy implementation
if clearer policy objectives and standards were defined, implementing agency capacities
were improved, higher quality public services were provided, compliance with
implementation regulations by foreign investors was ensured, and a more stable
political environment was offered. Also, the study shows that foreign-invested
companies will be re-invested in more if they have bigger amounts of foreign
investment, fewer years of experience, and if a more stable political and legal
environment is provided.
The most important factor for increasing foreign investors’ satisfaction
regarding foreign investment policy implementation is the capacity of the implementing
agency, followed by the clarity of policy objectives and standards and political
stability. The clarity of policy objectives and standards and political stability also
increases foreign investors’ compliance with implementation regulations and the
capacity of the implementing agency. Also, a crucial factor for promoting reinvestment
in foreign-invested companies is political stability.
This study recommends developing strategic plans for promoting foreign
investment in sectors which need to be developed or where local investors perform
weakly, such as infrastructure and industry sectors. Aside from promoting foreign
investment, the study also recommends that the government has more clear policies
on the regulation of foreign investment in strategically important sectors or sectors
where local investors perform well. Examples of these sectors are the mining and
banking sectors. Strategic plans should be developed for the improvement of
infrastructure and the stabilization of the political and legal foreign investment
environment. In addition, this study recommends modification of policy objectives
and standards and increasing the capacity of implementing agencies.
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