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We call them in that way because by the time the Mongolia divided into Chinese inner Mongolia(colon of China) and Republic of Mongolia(independent) the one Mongolia was innerly located and the outer Mongolia was in the outer direction!!So to separate them we call it one outer and inner by their location.

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Q: Why is Mongolia called outer Mongolia?
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Related questions

What has Mongolia been called in the past?

It shortened it's name in 1992 from Outer Mongolia


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