29
Table 7-4. Top 10 sectors increasing intrade balance
Source: authors’ GTAP model results.
Table 7-5. Top 10 sectors declining intrade balance
Source: authors’ GTAP model results.
7.2. Impact on welfare
Using the simulated price and output changes based on the GTAP model, the predictions
regarding changes in welfare and poverty were created using the Lao Expenditure and
Consumption Survey (LECS 4). Table 7-6 summarizes the results of the micro-simulation.
The first panel in the table shows the mean change in welfare for households from AFTA in
terms of rural and urban regions.
As seen in the table, all of the numbers are negative, which means that on average households
in Laos are net buyers rather than sellers. The fourth column indicates the estimated per
capita welfare changes. AFTA will increase welfare in Laos by 11.85% on a national level.
However, the direction of the welfare change in rural areas is larger than in urban areas
(20.09% in rural areas and 6.20% in urban areas). In the panel, welfare changes are estimated
No.
Code
Sector
Change(%)
1
nfm
Metals
250.340
2
oil
Oil
45.600
3
lum
Wood products
23.310
4
ely
Electricity
20.120
5
ros
services
7.020
6
gro
Cereal, grains
0.990
7
wht
Wheat
0.000
8
rmk
Raw milk
0.000
9
wol
,
cocoons
0.000
10
gas
Gas
0.000
No.
Code
Sector
Change(%)
1
ofd
Food products
-39.42
2
ome
Machinery and
equipment
-35.57
3
crp
Chemicals, rubber, plastic products
-29.17
4
p_c
Petroleum, coal products
-27.17
5
wap
Wearing apparel
-23.79
6
nmm
Mineral products
-20.06
7
otp
Transport
-19.5
8
ocr
Crops
-16.9
9
b_t
Beverages and tobacco products
-15.49
10
mvh
Motor vehicles
and parts
-14.26
30
by region (north, central and south), and all regions will gain from AFTA. However,
households in the south of Laos experience the most gains from AFTA compared with other
regions.
The second panel in the table shows the change in economic inequality due to AFTA using
the Gini index
23
. We found that there were declines in inequality due to AFTA on anational
level. However, its change is relative small. Inequality in rural areas increased slightly. On
the other hand, inequality in urban areas was predicted to decrease but the change would be
small. Inequality across regions and inequality in Vientiane will decrease, but in other regions
it will increase. This indicates that inequality changes from AFTA ware heterogeneous across
regions.
The third panel shows the poverty impacts of AFTA. Poverty will increase about 3.81%
onthe national level
24
. Poverty in rural areas will reduced but poverty in urban area will
increase from AFTA. This indicates that the impact of AFTA on poverty is heterogeneous.
As discussed in this section, the impacts AFTA on welfare are positive on a national level, for
urban
households, and for rural households. In addition, welfare will increase across all
regions. Furthermore, AFTA will reduce inequality on the national level but the impacts of
AFTA on inequality are heterogeneous across the region. AFTA might increase poverty as
measured by expenditure, though its changes will be relative small and its impacts
heterogeneous.
There are three main reasons for increasing welfare in rural households rather than urban
households such
as changes in wages, changes in the prices of production goods, and changes
in revenue from the sale of agricultural products. The first source of the difference is due to
increases in wages. Rural areas will gain more wage income (un-skilled labor) in the
agricultural sector from AFTA than urban areas. The second difference is due to lower prices
for consumer goods. AFTA leads to lower prices in necessary consumption goods, such as
those used in food production, agricultural machinery and other manufacturing goods.
Therefore, rural households will gain greater benefits from AFTA than urban households in
terms of lower prices of consumption goods. The third difference is due to changes in income
from the sale of agricultural products. The agriculture sector is mainly located in rural areas.
Rural areas might benefit from an increase in revenue from the sale of their agriculture
products due to increases in crop prices brought about by AFTA.
23
Here, it is important to note that we use household expenditure to calculate the Gini index.
24
It is important to note that we use household expenditure to calculate the headcount index. The poverty line
was set at the $1.25 poverty line, which comes to 142,181.56 kip per month ($38) for 2005, following
Engvall
et al. (2009).