Transitional economies in free trade areas: Lao PDR in the ASEAN free trade area

Jayant Menon ()

Journal of the Asia Pacific Economy, 1999, vol. 4, issue 2, 340-364

Abstract: Lao People's Democratic Republic (PDR) is a transitional economy, and one of the few least developed economies in the Southeast Asian region. Lao became a member of ASEAN in July 1997, and will participate in the ASEAN Free Trade Area (AFTA) from 1 January 1998. In this paper, we examine the impact that membership of AFTA is likely to have on Lao's trade, government revenue and foreign investment flows. We find that: (i) trade diversion is likely to be low, and that AFTA will provide the vehicle to negotiate market access issues with Thailand; (ii) the reduction in government revenue from trade taxes is likely to be low, particularly in light of the high share of informal trade and only low levels of trade diversion; and (iii) foreign direct investment (FDI) flows are likely to grow sharply in the future, as the legal, administrative and institutional framework in Lao develops to meet the ASEAN standard.

Date: 1999
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DOI: 10.1080/13547869908724685

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