Methodology for Determining Optimal Import Tariffs

Abstract

The concept of ‘comparative advantage’ has always been at the heart of national economic development policy. It refers to the export goods that one country produces better than other countries and the trading of such goods for products that other countries produce best. Mongolia is a small, landlocked country, situated at great distances from the world’s major transport channels and seaports. It mainly exports agricultural and mining products to world markets and depends on imported goods for its domestic consumption. Landlocked countries are primarily affected not only by high transportation costs but also by low competitiveness in the global market. Historically, Mongolia has benefited from the export of its raw agricultural materials, such as cashmere, wool and meat. However, rapid urbanisation, growing population needs and high import prices in recent years, especially during the COVID-19 pandemic, means the country must shift from its static comparative advantage of an economy to a dynamic one. Mongolia must pursue a trade policy aimed at creating value-added end products capable of meeting the demands of its domestic consumption and competing in the international arena based on development potentials and comparative advantages of the country. The objective of this paper is to illustrate how tariff optimisation could potentially be used to protect domestic industry, specifically focussing on the dairy production industry.