Written by Mekong Institute

International trade is the main driving force behind economic development of many countries. It is a significant source of foreign currency and national income, which can be used to support a country’s economic growth. Many developing economies have implemented trade liberalization by participating in various Free Trade Agreements (FTAs) in order to improve market access and increase export performance.

This research aims to analyze the progress of trade liberalization and looks at various types of trade costs encountered by Lao exporters. It will also identify the determinants of Lao exports in its relationship with major trading partners, which emerge as a consequence of already implemented FTAs. In this process the panel Gravity model will be used. For this purpose, 20 major Lao’s trading partners have been selected in the period of 2005-2012.

The findings suggest that trade liberalization has played a crucial role in stimulating exports of Laos to major trading partners, as indicated by the tremendous increase in the country’s export, from $US330 million in the year 2000 to $US 2,269 million in 2012. Major export goods include mineral products; garment and agricultural products, all of which combined accounted for 74.31% of the total exports in 2012.Major trading partners of Lao PDR are Thailand, Australia and Vietnam. These three countries account for two-thirds of Lao’s total export. The result of the Gravity model suggests that trading partners’ income, geographical distance and common border should be considered to be significant factors affecting a country’s exports. While the FTAs implementation turns out to have either ambiguous impacts, or negative effects on exports, the lack of export diversification and the low capacity of domestic producers might be significant factors causing less preferential tariff utilization.