Economic activity in Mongolia has traditionally been based on herding and agriculture. Mongolia has extensive mineral deposits. Copper, coal, gold, molybdenum, fluorspar, uranium, tin, and tungsten account for a large part of industrial production and foreign direct investment. Soviet assistance, at its height one-third of GDP, disappeared almost overnight in 1990 and 1991 at the time of the dismantlement of the USSR. The following decade saw Mongolia endure both deep recession because of political inaction and natural disasters, as well as economic growth because of reform-embracing, free-market economics and extensive privatization of the formerly state-run economy.
Severe winters and summer droughts in 2000-02 resulted in massive livestock die-off and zero or negative GDP growth. This was compounded by falling prices for Mongolia's primary sector exports and widespread opposition to privatization. Growth was 10.6% in 2004, 5.5% in 2005, 7.5% in 2006, and 9.9% in 2007 largely because of high copper prices and new gold production. Mongolia is experiencing its highest inflation rate in over a decade as consumer prices in 2007 rose 15%, largely because of increased fuel and food costs. Mongolia's economy continues to be heavily influenced by its neighbors.

For example, Mongolia purchases 95% of its petroleum products and a substantial amount of electric power from Russia, leaving it vulnerable to price increases. Trade with China represents more than half of Mongolia's total external trade -China receives about 70% of Mongolia's exports. Remittances from Mongolians working abroad both legally and illegally are sizable, and money laundering is a growing concern. Mongolia settled its $11 billion debt with Russia at the end of 2003 on favorable terms. Mongolia, which joined the World Trade Organization in 1997, seeks to expand its participation and integration into Asian regional economic and trade regimes.

Industry currently accounts for 21.4% of GDP, approximately equal to the weight of the agriculture sector (20.4%). These industries include construction materials, mining (coal, copper, molybdenum, fluorspar, tin, tungsten, and gold), oil, food and beverages, processing of animal products, and cashmere and natural fiber manufacturing. The industrial production growth rate is estimated to be 4.1% in 2002. Mining is continuing to rise as a major industry of Mongolia.

Mongolia has increasingly started to develop its technology industry since the democratic revolution of the early 1990s, and many new technology companies have been founded. Also, some technology companies in nearby countries, such as South Korea and the People's Republic of China, have started to open offices in Mongolia.

After the democratic revolution of the early 1990s, Mongolian domestic production has picked up providing basic food production to its residents through increasing competition among companies. According to the CIA World Factbook, in 2003, the service sector accounted for 58% of the GDP, with 29% of the labor force of 1.488 million involved.

However, investment from Korea and other countries have helped add more paved roads and [?] to China, Korea, Japan, Germany, Russia, and other countries. The air transport company of Mongolia is MIAT. Petroleum products are to a large part (80%) imported from Russia, which makes Mongolia vulnerable to supply side shocks. This is one strong example of the influence of Mongolia's neighbors on its economy.

Though the majority of Mongolian citizens are of Mongol descent there are small populations of Kazakh, Tuvan and Tungus peoples. Mongolia's population growth rate is estimated at 1.54% (2000 census). About two-thirds of the total population is under age 30, 36% of whom are under 14. This relatively young and rapidly growing population has, as in many developing countries, placed strains on Mongolia's economy. According to the World Factbook, 50% of Mongolia's population are Buddhist-Lamaist, which is related to Tibetan Buddhism. 40% are atheist, 6% are Shamanist or Christian, and 4% are Muslim.

Life in sparsely populated Mongolia has become more urbanized. Nearly half of the people live in the capital and in other provincial centers. Seminomadic life still predominates in the countryside where many families stay in villages during the cold winters and live in gers during the summer, though agricultural communities that are settled year-round are becoming more common.

Ethnic Mongols account for about 85% of the population and consist of Khalkha and other groups, all distinguished primarily by dialects of the Mongol language. The Khalkha make up 90% of the ethnic Mongol population. The remaining 10% include Durbet Mongols and others in the north and Dariganga Mongols in the east. Turkic speakers (Kazakhs, Tuvans, and Uyghurs) constitute 7% of Mongolia's population, and the rest are Tungusic speakers, Chinese, and Russians. Most, but not all, Russians left the country following the withdrawal of economic aid and collapse of the Soviet Union in 1991.