POTENTIAL IMPACTS OF REGIONAL TRADE ENLARGEMENT IN EAST ASIA ON LAOS’ TRADE

Abstract

Using an unbalanced panel dataset of bilateral trade flows from 1992-2009, we assess the potential impacts of the formation of ASEAN+3 and ASEAN+6 free trade areas (FTAs) on Laos’ trade. We find that bilateral trade flows between Laos and its trade partners are positively related to the sum of bilateral gross domestic product (GDP) and the degree of similarity in GDP size between Laos and the partner, and inversely related to relative factor endowment differences, transportation costs, and import tariff rates. Our simulation results show that Laos stands to gain from the formation of ASEAN+3 and ASEAN+6 FTAs if tariff barriers are gradually decreased. However, such examples of regional integration could harm Laos’ economy if all tariff barriers were completely removed due to Laos’ lack of competitiveness.