Quadratic configuration interaction (QCISD) method has been used to optimize the possible ground state structures of MgB and MgB2 by the 6-311G and 6-311++G(df) basis sets. The potential energy functions of MgB2 have been derived from the many-body expansion theory. The potential energy functions describe correctly the configurations and the dissociation energies of the two ground-state molecules. Molecular reaction kinetics of B+MgB and Mg+BB based on the potential energy functions is discussed briefly, which is successfully used for describing molecular reaction dynamics.