The Resource Curse Hypothesis in Lao Economy

Soukvisan Khinsamone

Journal of Asian Development, 2017, vol. 3, issue 2, 60-77

Abstract: The purpose of this paper is to investigate the adaptability of the resource curse hypothesis for Lao economy. The study verifies the two crowding-out logics that resource abundance would crowd out manufacturing activities and/or savings and investment, by examining their causalities and impulse responses in a vector auto-regression (VAR) model estimation. The estimation outcomes implied the existence of the resource curse in Lao economy: resource production has crowded out manufacturing activities through real exchange rate appreciation, thereby causing the Dutch Disease; and resource production has not contributed significantly to capital accumulation, thereby being not consistent with Hartwick-rule. The study contributed to the literature by verifying two kinds of crowding-out logics on the resource curse by applying a VAR model: the crowding-out of manufacturing activities as a sectoral allocation, and the crowding-out of savings and investment as an intertemporal allocation. The study might also be valuable to the policy makers, since it proposed a strategy for transforming Lao economic structure from "resource curse" to "resource blessing" by setting up some institutional framework to allocate resource revenues to infrastructure development.

Keywords: Lao economy; Resource curse; ASEAN; Vector auto-regression; Dutch Disease; Hartwick-rule (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mth:jad888:v:3:y:2017:i:2:p:60-77

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