This paper reports the results of a survey of SMEs (Small, medium enterprises) regarding non-market transaction costs they faced through all of their business operational stages. The paper aims to clarify priority factors required to improve the business environment in Mongolia.

Non-market transaction costs include cost of time spent by responsible staff for dealing with government regulations, cost of searching for advice and information, unexpected cost of delay in service provision by state agencies, informal payment (gift and bribe) etc. We interviewed 1541 SMEs and found that average monetary value of the transaction cost is MNT 9 million (~USD4500) per year which is around 4.4% of annual turnover of SMEs.

The results indicate that the combined share of transaction costs of tax compliance and collecting custom documents is 73 percent of total transaction cost and that micro businesses bear considerably more burden of transaction cost than larger businesses.

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