Written by Mekong Institute

The purpose of this study is to analyze factors that have made an impact on export and import between Lao PDR and its three principal trade partners, Thailand, China, and Vietnam from 1990 to 2010. The specific research questions are:

  1. What are the main factors affecting trade between Lao PDR and its three principal trade partners
  2. If the exchange rate changes drastically, how will it affect Lao PDR trade

The theory of international trade law of absolute advantage, comparative advantage, and export supply and import demand concept were reviewed to analyze the trend. Also, the theory of real effective exchange rate was reviewed to arrive at logical concluding of the study.

The data used in this study is gathered from the following: Lao PDRs aggregates export-import, GDP and foreign exchange reserves of Lao PDR, Ministry on Industry and Commerce of Lao PDR, and National Statistic Center of Lao PDR. On the other hand, unit values of Lao PDRs export-import price are collected from international indicator statistics, which is a publication of the Asian Development Bank (ADB), World Bank, etc.

To estimate the export and import functions of Lao PDR and its principal partner countries, the Ordinary Least Square Method (OLS) model which is a formula of multiple regression natural log-linear form was applied. The factors affecting Lao PDRs export were observed to be the real gross domestic products of Thailand and foreign direct investment. Other factors are the exchange rates and foreign direct investment. In the case of China, Lao export depended on only the gross domestic product of China, while the factors affecting Lao import, were real gross domestic product of Lao PDR. In the case of Vietnam, factors affecting Laos exports were real gross domestic product of Vietnam, exchange rates, foreign direct investment. 

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