Beyond the Urban Sweet Spot: Firm-Level Evidence of Over-Agglomeration in Mongolia’s Capital

Jose Luis Diaz Sanchez and Mijiddorj Lkhagvasuren

No 11415, Policy Research Working Paper Series from The World Bank

Abstract: This paper provides the first firm-level assessment of agglomeration economies in Mongolia, focusing on Ulaanbaatar, the country’s dominant urban center. Using data from the 2021 Enterprise Census, the paper estimates total factor productivity for a large sample of enter-prises and examines its relationship with localization, urban diversity, and peer productivity. The results indicate robust positive agglomeration effects, alongside suggestive evidence of diminishing returns to localization consistent with an inverted U-shaped pattern. These non-linearities are most apparent in Ulaanbaatar and in manufacturing, although they prove sensitive to alternative agglomeration and productivity measures. Although the cross-sectional nature of the data limits causal inference, the analysis offers new micro-level evidence on how spatial concentration interacts with congestion, infrastructure strain, and potential spatial misallocation. The findings underscore the importance of urban planning, infrastructure investment, and the development of regional hubs to sustain productivity growth in Mongolia’s highly concentrated urban system, with implications for diversification beyond mining in resource-dependent economies.

Date: 2026-06-29
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