The Effects of afta on Macroeconomic Variables and Poverty: Evidence of Laos
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- 4.2. Characteristics of Lao Trade
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Laos’ key export products have concentrated on the mining and hydropower (MOIC, 2011), policies aimed at increasing exports of these products can lead to the scarcity of water resources for rural people through increased use for mining activities and hydropower development. Finally, removing all tariff barriers can lead to more severe trade deficit which could result in a depletion of international monetary reserves, currency instability, and a slowdown of economic growth. The expansion of Laos’ foreign trade has the potential to raise domestic production, but also the potential to cause some forms of macroeconomic instability and environmental deterioration if more prudent macroeconomic policies are not designed and standards of governance are not raised simultaneously.
Trade trends indicate that Laos has been facing a chronic trade deficit since introducing the New Economic Mechanism (NEM) in 1986, although the situation has recently changed. Laos imports various goods from other countries, from light and heavy manufacturing goods to processed food, textiles and clothing. Imports from Thailand account for 60% of all imported goods in 2008 (table 4-1; 4-2).
Laos’ main export commodities in 2004 were textiles and clothing, light manufacturing, and products of mining. However, the export structure of the country has since changed. The heavy manufacturing held the highest share of exports in 2008, higher than textiles and cloth and mining(table 4-3; 4-4). The main export destinations are Thailand, the European Union, East Asia and Vietnam. This shows that Lao trade is highly dependent upon Asian countries, especially its neighboring countries. As tariff rates for Laos and its trading partners are already low, Laos might not gain much from the affects of AFTA through tariff cuts.
Table 4-1. Imports by commodity (%) Sources: GTAP data base 7 and 8.
2004 2008
Grains and crops 1.74
1.48 Livestock and meat products 0.25 0.26
Mining and extraction 2.70
1.28 Processed food 15.03 10.12
Textiles and clothing 10.19
6.44 Light manufactring 18.44 26.77
Heavy manufacturing 46.58
49.13 Utilities and construction 0.53 2.46
Transport and communication 0.82
1.08 Other services 3.72 0.97
Total 100.00
100.00 16
Table 4-2. Imports by country of origin (%) Sources: GTAP data base 7 and 8.
Sources: GTAP data base 7 and 8.
2004
2008 Australia, New Zealand 1.87 1.20
Cambodia 0.06
0.00 East Asia 11.91 17.64
European Union 25 13.54
6.50 Indonesia 0.20 0.24
Latin America 0.26
0.10 Malaysia
0.29 0.62
Middle East and North Africa 0.95
0.10 North America 2.66 1.49
Philippines 0.03
0.03 Rest of Southeast Asia 0.01 0.01
Singapore 5.10
0.44 South Asia 0.44 0.27
Sub-saharan Africa 1.43
0.22 Thailand
53.67 66.06
Vietnam 5.70
4.16 Rest of the world 1.85 0.91
Total 100.00
100.00 2004
2008 Grains and crops 5.62 4.36
Livestock and meat products 0.90
0.46 Mining and extraction 9.00 10.07
Processed food 1.56
1.05 Textiles and clothing 27.26 12.74
Light manufacturing 21.20
9.73 Heavy manufacturing 4.91 42.87
Utilities and construction 1.11
2.72 Transport and communication 12.76 9.90
Other services 15.67
6.11 Total
100.00 100.00
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Table 4-4 Exports by country (%) Sources: GTAP data base 7 and 8.
5.0 SURVEY OF LITERATURE 5.1 Studies Conducted in other Developing Countries Empirical studies show that trade is important to stimulating economic growth (Winter, 2004; Dollar, 1992; Frankel and Rose, 1999).However, the impact of trade liberalization on poverty is complex. It has various channels through which it affects poverty such as economic growth and stability; households and markets; wages and employment and government revenue (Winter, 2004; Ravallion, 2006; Dollar and Kraay, 2004). There are several studies on the impacts of trade liberalization on macroeconomic variables and welfare in Asia 10 . For example, Park (2006) evaluated the effects of different East Asian Regional Trade Agreements (RTA) using a CGE model. He found positive effects of existing, proposed and forthcoming East Asian RTAs on the world and their members’ welfare. Park (2009) assessed the sustainability of regional trade agreements (RTAs) for East Asia using a multi-country and multi-sector CGE model. He found that expansionary ASEAN+3 RTA could be a sustainable policy option because the members will gain significantly positive impacts and its effects are equitable gains between members. In addition, the effect onworld welfare would also be positive.
10 Lakatos and Walmsley (2012) also estimated the effect of the ASEAN-China free trade agreement using GTAP model. Abbott (2008) examined the relationship between trade and development in Vietnam applying CGE model. He found out that trade could fosters growth and development in Vietnam 2004 2008
Australia, New Zealand 0.64
0.78 Cambodia
0.05 0.01
East Asia 7.11
15.75 European Union 25 46.29 24.65
Indonesia 0.14
0.38 Latin America 0.97 1.01
Malaysia 0.16
2.49 Middle East and North Africa 2.34 0.50
North America 11.16
7.67 Philippines 0.05 0.07
Rest of Southeast Asia 0.00
0.01 Singapore 0.53 0.50
South Asia 0.39
0.78 Sub-sahara Africa 0.55 0.93
Thailand 15.79
27.87 Vietnam
10.63 13.31
Rest of the world 3.20
4.06 Total
100.00 100.00
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