The Economic Impact of Weather Shocks on a Cold-Climate Developing Economy: Evidence from Mongolia

Dorothea M. Ramizo, Homer Pagkalinawan, and Maria Carina Tinio

ABSTRACT

Emerging markets in cold regions like Mongolia are vulnerable to weather-related shocks, yet most research has focused on the impacts of rising temperatures in hotter climates. This study addresses that gap by examining the effects of temperature and precipitation on Mongolia’s economy, focusing on key indicators such as real GDP per capita, provincial output, and sector performance in agriculture, mining, services, industry, and livestock. Using the local projection method, the economic impact of weather shocks is estimated using quarterly and annual data from the University of East Anglia Climate Research Unit (CRUTS v. 4). A 1°C increase in average yearly temperature reduces real GDP per capita by 4.8% after 2 years and provincial output by 3.5% after 4 years. A 1-mm increase in precipitation raises provincial GDP by 1.1–1.2% over two consecutive years from the time of impact. Livestock, a key sector for Mongolia, is negatively impacted by extreme weather events, while precipitation has a persistent positive effect on livestock output. Given these impacts, Mongolia must pursue fiscal and monetary policies designed to respond to its unique climate context and economic vulnerabilities by maintaining flexibility in addressing both short-term impacts (e.g., relief after a disaster) and long-term resilience such as investment in climate-resilient infrastructure and climate-smart agriculture.