The Impact of Energy Use on the Growing Economy of Mongolia

Abstract

In the contemporary world, energy is a very important factor for economic development, especially when a country is in the process of accelerating its economy into an industrialized one, as in the developing countries like Mongolia. The nexus between energy consumption and economic growth has been widely studied by various researchers from different countries. To date, however, this matter has not been sufficiently researched on for Mongolia, mostly due to data limitations and the countrys transitional economic circumstances. This study investigated the causal relationships (i.e., the short- and long-term structural associations) between the gross domestic product (GDP) and different energy variables of Mongolia by applying a modeling strategy based on the Granger causality from the vector error correction model, the augmented Dickey-Fuller and Phillips-Perron unit root tests, and the Johansen cointegration test. The study results showed that the consumptions of primary energy, oil, and electricity are associated with the GDP, respectively, and that they moved together for Mongolia in the sample period. The model determined a long-term unidirectional causality from electricity consumption to GDP, a long-term bidirectional causality between GDP and oil consumption, and a long-term bidirectional causality between primary energy and GDP. Furthermore, short-term unidirectional causalities were discovered from GDP to electricity, from GDP to oil, and from GDP to primary energy consumption. When energy consumption leads to economic growth in the long-term perspective, as in the case of electricity, primary energy, and oil, it means that Mongolia has a primary-energy-dependent economy and more primary energy is required to encourage economic development. This also implies that the increase of primary energy consumption as well electricity consumption may positively affect the countrys economic growth, that the application of strong energy conservation policies can negatively affect the countrys economic growth, and that it is possible to implement energy and electricity efficiency policies. Furthermore, Mongolias energy policymakers should diversify the countrys energy supply structure, should simultaneously continue implementing the electricity use subsidization policy for the general population and the commercial consumers. Moreover, in the long-term phase, Mongolia should vigorously develop its other clean energies, such us distributed generation based on a smart grid system using renewable technology, which can guarantee energy security for Mongolia as well as environmental protection in the region. Finally, the overall efficiency in all the sectors as well as the seasonal efficiency for individual residents and energy consumers should be improved, after which the investment in energy development technologies should be increased.