Written by Mekong Institute

Lao PDR is a resource-rich country, with many natural resources, including forestry, agricultural land, hydropower and minerals. After a robust economic upward trend with an average 8 percent growth which was experienced over the past decade, Lao’s economy is still expanding. Lao’s economy has greatly benefited from high-profile capital flows to the country in terms of foreign direct investments, public and private investments among others. In addition, during the fiscal year of 2012, the total official development assistance (ODA) increased from USD 392.48 million in the year 2011 to USD 408.92 million in the following year 2012 (Official Development Assistant Data, 2012).

Essentially, the issues affecting the economic development, especially in Lao PDR, which is still one of the least developed countries, are characterized by being a small economy with a high poverty rate and had small budgets to support and build up the areas of economic and social development. Thus, the official development assistance has played an important role in the socio-economic development of Lao PDR, especially in the sectors depending on public investment. Official statements acknowledge that sound official development assistance has played a crucial role in fostering the government’s goals of high economic growth rates of the country. In fact, many least developed countries have not achieved sustainable economic growth, despite the fact that they attracted more of both internal and external sources for supporting economic development progress.

In this context, the question still remains whether financial assistance, especially external sources in terms of ODA, do always promote economic growth in Lao PDR or not. Quite a number of studies have discussed the relationship between foreign assistance and economic growth, and the majority of those studies have focused on the link between Official Development Assistance on Economic growth in Lao PDR. This study has examined the impact of foreign assistance in the form of official development assistance on economic growth in Lao PDR by using time series data over the period 1985-2012. This study showed that the official development assistance has a positive effect on economic growth in Lao PDR. Thus, it can be concluded that ODA has contributed to economic growth in Lao PDR.