Drastic Effects of Asian Financial Crisis on Macroeconomic Structural Changes in Lao PDR

Sorphasith Xaisongkham ,Liuxia ,Kheuakham Bounvilay ,Phetphongphanh Savangchakavane

doi:10.7176/rjfa/11-22-05

Abstract

More than a decade that the world economy has suffered with the destructive incidents from Asian Financial Crisis (AFC) occurred in 1997 and global financial crisis in 2008. Therein, the inception of AFC was derived from Thailand, and Lao PDR also treated as one of the most affected countries from AFC. This article attempts to discover innovative empirical evidence by identifying the drastic effects of AFC on macroeconomic structural changes in Lao PDR. By utilizing a special technique and superior method. Say, Zivot & Andrews structural break unit root testing developed by (Zivot & Andrews, 1992) to endogenously determine a one-time structural break, and the quarterly time series data also adopted in the period of 1990Q1-2006Q4. The empirical evidence substantiated the disastrous incident of AFC had initially affected on exchange rate (1997Q2), followed by consumer price index (1997Q2) and broad money (1997Q2) in the second quarter respectively, whilst total reserves was affected by AFC at the beginning of 1998 (1998Q1) and transmitted its shock to other macroeconomic variables in long run. Similarly, the outcomes strongly averred that AFC has engendered to drastic effects on macroeconomic structural changes in Lao PDR specifically the domestic currency has intensely depreciated (US/KIP) in the history of Lao PDR up to the present. Moreover, policy recommendations were proposed in this paper. Keywords: Zivot & Andrews Structural Break, Asian Financial Crisis, Macroeconomics Variables, Lao PDR. DOI: 10.7176/RJFA/11-22-05 Publication date: November 30 th 2020

Highlights

Nowadays, global economy is rapidly growing after suffering and recovering from devastating crisis namely Asian financial crisis, which was taken place in 1997 and followed by global financial crisis in 2008
Lao PDR has enormously hurting from the drastic effects of Asian financial crisis since many economic transactions are conditional on her major trading partner namely Thailand
This paper aims to capture the drastic effects of Asian financial crisis on macroeconomic structural changes in Lao PDR by employing a special technique and advanced econometric method

Summary

Introduction

Global economy is rapidly growing after suffering and recovering from devastating crisis namely Asian financial crisis ( called AFC), which was taken place in 1997 and followed by global financial crisis in 2008. AFC engendered to the slump of asset prices, exchange rate and economic activities to be more drastic from the initial weak circumstances, the study recommended an effective way to assist in recovering Asian countries composed of the process of accelerated debt restructure, corporate debt minimization, providing new priority of financing for working capital and trade, and government’s active role should be taken into account so as to restructure comprehensive approach of various banks and financial institutions. 3. Data and Methodology 3.1 Data To investigate the drastic effects of Asian financial crisis on macroeconomic structural changes in Lao PDR, we employ the structural break proposed by (Zivot & Andrews, 1992) and apply the quarterly time series data during 1990Q1-2006Q4. There are still many methods to detect and take care of unit root problem (Non-stationary) proposed by a great deal of economists www.iiste.org (Dickey & Fuller, 1979; Dickey & Fuller, 1981; Dickey, Hasza, & Fuller, 1984; Phillips & Perron, 1988; Kwiatkowski, Phillips, Schmidt, & Shin,1992), which these techniques have extensively been adopted for time series analysis

Model Specification

Empirical Evidence

Conclusion

Findings

Conclusions and Remarks Lao