Economic diversification scenarios for the mining dependent Umnugovi province of Mongolia

Mining accounts for a large and volatile share of output in many resource-dependent regions, yet numerical diversification targets can be misleading when they are estimated from short time series or imposed through arbitrary sectoral bounds. This study develops a concentration-penalized mean–variance framework for Umnugovi Province using official current-price gross value added data for 2015–2024. Eight mutually exclusive sectors are constructed directly from the National Statistics Office classification. Because the utilities series records negative value added in 2022, sector growth is measured using the bounded symmetric growth rate. Sector-specific median growth estimates and a Ledoit–Wolf covariance estimator are used to reduce the influence of outliers and the instability associated with estimating an eight-sector covariance matrix from nine annual changes. The objective function combines expected growth, covariance risk, the Herfindahl–Hirschman Index, and a penalty for abrupt departure from the observed 2024 economic structure. Three scenarios illustrate different trade-offs among expected growth, risk, and sectoral concentration. Umnugovi’s 2024 HHI is 0.4278, the second-highest value among Mongolia’s 22 territorial units—21 aimags and Ulaanbaatar—under a common eight-sector classification. In the central scenario, the mining share falls from 62.85 to 46.61% and the HHI declines to 0.2769. These estimates are conditional scenario results rather than policy targets or forecasts. Leave-one-year-out estimates place the mining share between 32.48 and 53.31%, while the 95% bootstrap interval is substantially wider. The stable finding is therefore directional: lower-concentration configurations recur across specifications, but the available annual data do not identify a unique optimal sectoral structure. The framework is presented as a transparent scenario tool for regional planning rather than a predictive model.