1.1 Background of the study
Laos introduced reforms on economic institutions in 1986, which was closely followed by a comprehensive opening policy, forming the present economic institutions: coexistence of diverse economic sectors based on public ownership of the means of production; prices set by the market; more pay for more work, reward for diligence and punishment for indolence; rational distribution and redistribution of all incomes. A rudimentary system of market economy has been set up in Laos with management model conducive to economic development. The rapid growth in national economy and the rise in living standard and incomes produced favorable macroeconomic conditions for attracting foreign investment. Lao is the one of ASEAN countries, there was the value of total trade parallel to 6.9$ billions, total exports accounted for 2.2 $ billions (Trade Map, 2014), alongside of last year increased 11.67 percent. In addition, ASEAN countries still have encountered with high transport cost, in a particular Laos, the trouble of geographical location, the problem of scarce labors and resources in various industrial-agricultural sectors, unskilled labor and specialization in productions, these are caused of transferring labors from low wage to high wage, patterns of IIT in each country are differentiated size of each category, owing to some country have only exports, imports, and some country are included exports and imports, of similar and diverse categories. Otherwise, each country has dissimilar specialization, preferences, technology level, accessing to resources and factor endowments. Furthermore, IIT of Laos and trading partners has still demonstrated the comparative advantage, productive specializations, and state-of-the-art technologies throughout capital and labor incentive goods of international productions, in order to enhance the competitive capacity of the similar and distinct goods production in trade bloc and other regions, in a particular to measure a country’s competitive capacity alongside of exterior as well as various trading partners in the world.
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1.2 Significant of the research.
The effects of foreign trade on Lao’s economic Growth and aid in development of appropriate strategies that will ensure they stay competitive. This will help in improving their performance in form of market penetration and returns. The study will aid Government and government institutions dealing with imports and exports, in policy formulation to improve the Laos’ imports and exports. To researchers and academicians, this research will provide an understanding of the effects of foreign trade on Lao’s economic Growth. This will be vital for future reference and will contribute to the available body of knowledge. This study aims to examine the impact of Foreign trade on several economic development indicators in the context of Laos. The study is important to help Laos enjoy further economic development as well as contributes to the literature of FDI and economic growth in the context of developing countries.
Since the reform and opening up, the Lao government has constantly introduced new laws and regulations to improve the domestic law legal system, strengthen economic and trade ties, and cooperation with foreign countries. As an important leader of the neighboring countries and also the largest developing country in the world, Laos attaches importance to trade relations with China and constantly strengthens trade contacts and contacts. In recent years, the scale of trade between Laos and China has been increasing and the trade ties have become more and more. In particular, China's investment in Laos, technology imports, advanced equipment exports, so that the necessary factors for Laos' economic development continue to improve, the domestic economic growth rate sustained and stable. This fully shows that the trade between foreign trade in Laos has accelerated the development of the Lao economy to a certain extent, which is very important to study the impact of foreign trade on Laos economic growth.
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CHAPTER TWO THE RELATIVE THEORY AND THE MECHANISM OF FOREIGN TRADE PROMOTING ECONOMIC GROWTH.
2.1 The relative Theory
2.1.1 Theoretical review
Since the implementation of Laos’s economic reforms in 1986, its government has issued a series of strategies relating to the economic development of the country, set up a macroeconomic regulation and control decision system, and emulated the development direction of the industrialized countries. It has established a reasonable economic development model and structure and promoted the development of social economy and culture. The policies and plans of government have been funneled into concrete and feasible initiatives, focusing on the implementation of projects such as commodity production, service industry and poverty alleviation, maintaining social stability, and protecting ecological security and environmental quality (Phimphanthavong, 2012).
The government has mainly based its reform of the foreign trade system based on the principle of governmental separation, integration of industry and trade, foreign trade agency, and the integration of import and export. It has partially opened the right of trade and operation, and trading companies operate according to the principle of independent reform. It has also adopted policies relaxing foreign exchange controls, implementing export tax rebates, and giving full play to market mechanisms, so as to create a favorable and effective external environment for foreign trade enterprises to operate independently.
Both import and export have generally maintained sustained growth since the implementation of economic reform Due to the weak industrial foundation and shortage of funds in Laos, coupled with the influence of the world economic environment, the growth rate of foreign trade slowed for some previous years, but has maintained relatively stable growth for the past two years.
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2.2 The Mechanism of foreign trade Promoting Economic Growth
2.2.1 Resource allocation to optimize economic growth
Lao PDR has made good development progress over the past twenty years, halving poverty, reducing malnutrition and improving education and health outcomes. The 8th National Socio-Economic Development Plan 2016–2020 outlines the Lao government’s program for further reducing poverty and boosting prosperity in the country. The plan proposes reforms that support greener, more inclusive growth, recognizing the limitations of a growth model that relies on natural resources and places increasing pressure on the environment. The green growth agenda aims to improve local livelihoods by diversifying income sources and encouraging the private sector to spur market development, for instance through sustainable forest management and nature-based tourism. To reduce extreme poverty and boost shared prosperity, supporting National Socio-Economic Development Plan. Focus areas include: Supporting Inclusive Growth: Putting public finances on a sustainable path and supporting financial sector stability, making it easier to do business, and investing in infrastructure for growth and inclusion. Investing in People: Reducing malnutrition, improving the quality of primary and pre-primary education, keeping girls in school, improving access to and quality of health services, reducing vulnerability, and boosting inclusive access to social services. Protecting the Environment: Promoting environmental protection and sustainable natural resource management, enhancing disaster risk management and climate and disaster resilience. Cross-cutting theme: Enhancing governance and creating a rules based environment.
Table 3.1: Value of Imports and Exports and Balance of Trade 1988-2019 (USD million)
CHAPTER 3 AN OVERVIEW OF FOREIGN TRADE AND ECONOMIC GROWTH IN LAOS ................................................. 16
3.1 An Overview of Foreign Trade in Laos ..................................... 16
3.1.1 The Major Policy of Foreign Trade in Laos ................................ 16
3.1.1.1 Trade Policy Before Economic reform(1975-1985) ..................................... 16
CHAPTER 4 THE EMPIRICAL ANALYSIS OF FOREIGN TRADE ON ECONOMIC GROWTH IN LAOS .................................... 29
4.1 The Model and Description of Variables ............................... 29
4.2 The Results of Empirical Analysis ............................................. 30
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS ............................... 38
5.1 Concluusions .............................. 38
5.2 Recommendations ....................................... 40
CHAPTER FOUR THE EMPIRICAL ANALYSIS OF FOREIGN TRADE ON ECONOMIC GROWTH IN LAO.
4.1 The model and description of variables
In order to comprehensively carry on the relationship between foreign trade and Laos economic growth, this paper will establish two models, the first model is the total import trade on Laos economic growth, the second is the total export trade on Laos economic growth, and foreign direct investment, the trade opening to the economic impact. According to the foreign trade on economic growth theory, in addition to the investment of capital, labor, and other basic factors to promote Laos' economic development, Economic openness can also enhance the efficiency of factor use, therefore, can make economic development input factors get more effective production.
This study used times series data from 1988 to 2019, for a period of thirty-one years. The data needs were identified on the basis of the objectives of the study. The data for this study were derived from the Word Bank’s (WB), World Development Indicators (WDI) database, and United Nations Conference on Trade and Development (UNCTAD) database.
Table 4.1: Variable definitions, measures and sources of data
CHAPTER FIVE CONCLUSIONS AND RECOMMENDATION
5.1 Conclusions
This study took Laos as its research object and examined the relationship between Laos’s trade and economic growth through the lens of its foreign trade development history and trade policies both before and after economic reform. The adjustment of foreign trade policies following economic reform, as well as joining ASEAN, have had an important impact on the adjustment of Laos’s economic structure and level of economic development. This study used time series data to conduct regression tests on relevant data as part of its analytical approach. Since Laos opened up to foreign trade and investment in 1986, the government’s policies have been outward-looking. A cointegration analysis and Grainger causality tests were used to empirically analyze the theoretical relationship between foreign trade and economic growth, as well as the current situation of foreign trade development in Laos. These tests revealed that, in the long run, the total trade volume in Laos, export and import volume, are all positively related to the GDP of Laos. The total trade volume in Laos has greatest impact; in the long -term, exports have a greater impact on GDP than imports.
Through economic reform and opening up, Laos has gradually strengthened its foreign trade strategy and initially achieved the short-term goals of trade facilitation and economic development. However, in the long run, the most important thing for Laos' foreign trade is to achieve high-quality economic development. On this basis, it is necessary to optimize the industrial structure and improve the foreign trade structure in order to accelerate the development of Laos. Upgrading the industrial structure of Laos and achieving industrialization as soon as possible, thus enhancing Laos's international competitiveness: We need to expand the scope of trade, Only in this way can we better develop foreign trade by increasing the openness of the market and improving the government's financial policy, expanding the model of foreign investment, developing modern education and increasing the investment in scientific research. Increase the added value of products, expand the scale of foreign trade, ultimately better promote the development of Lao domestic economy, improve the living standards of people.
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