Just six years ago, Stephen Colbert told us that the Mongolian edition of Cosmopolitan was selling for 7,000 tugriks. He added that subscribers got half off the newsstand price and a free goat bladder phone.
The arrival of Cosmo was an indicator of Mongolia’s commodity wealth. At Ulaanbaatar’s luxury mall, the shops included Louis Vuitton and Hugo Boss. But there was one problem. It mostly depended on China.
Where are we going? To Dutch disease.
Mongolia’s Commodity Problems
Their export revenue depended on commodities like copper and coal:
Mongolia’s Exports
A lot of that export revenue came from China:
Export Destinations
But recently, China’s demand for commodities has diminished. Correspondingly, in world markets, the price of copper and coal has sunk:
The result?
From a whopping 17%+ growth rate, the Mongolian economy has been contracting:
Our Bottom Line: Dutch Disease
Mongolia’s problems display the downside of commodity wealth. The herding and agriculture that characterized their economy were nudged aside by copper and coal. Rendering other activity unimportant, commodity revenue boosted jobs, income and government spending. But when the boom turned to bust, there were no alternatives. The contraction was magnified, unemployment grew and GDP contracted.
Rather like a natural resource curse, Dutch Disease got its name in the Netherlands during the 1960s and ’70s. Far beyond Mongolia, it has afflicted oil producers and maybe even Detroit.
My sources and more: Having heard an NPR update on Mongolia’s economy, I immediately thought of Dutch Disease. More specifically, Bloomberg details the trajectory of coal prices while WSJ tells more about Mongolia’s decline. But if you would like the academic side, I recommend this paper. And finally, for a treasure trove of visualizations, do take a look at OEC. Please note that the Colbert facts came from a previous econlife post.
