A Static CGE Model of the Mongolian Economy

Abstract

The Mongolian economy has experienced unprecedented growth rates driven by the booming mining sector. At the same time, it has become increasingly dependent on the mining sector to the extent that movements in the international price of mining commodities could have disturbing effects on the economy. In this research, we examine the short-run effects of the developments occurring in the mining sector on the economy by calibrating a PEP standard static CGE model to a 2010 Mongolian social accounting matrix. In particular, we consider two scenarios: an increase in the stock of capital and land possessed by the coal sector and a drop in the world price of metal ores. In the former scenario, we find that the shock leads to increased value added, production, employment and exports in the coal sector, resulting in higher real GDP, exports and investment. Moreover, we do not find the associated Dutch disease effects on the other sectors. In the second scenario, we find that the effects on the productions, value added, employment, real GDP and investment are all negative while real exports and government expenditure increase slightly.