Dutch Disease and the Mongolian Economy

This paper analyzes whether symptoms of Dutch Disease were present in the Mongolian economy during 2001–2010. We first provide a brief review of the literature on Dutch Disease and the natural resource curse, and then discuss the symptoms of Dutch Disease in Mongolia, which include the followings: 1) Deterioration in the non-mining tradable sector and expansion in the mining sector; 2) Labor-force movement and government expenditures; 3) Increased wage growth in the overall economy; and 4) Appreciation of the real exchange rate. Relative de-industrialization rather than absolute de-industrialization was found in the non-mining tradable sector, and the spending effect has been more significant than the resource-movement effect in the Mongolian economy. For an empirical analysis, we estimated the long-term relationship between the real exchange rate and its determinants, but the results are mixed. We conclude that the diagnosis of Dutch Disease cannot be confirmed even though Mongolia may be characterized by all these symptoms.