The Dynamic Impact of Economic Growth, Foreign Direct Investment and Infrastructure in Laos

Abstract

This study examines the dynamic impacts of economic growth, foreign direct investment, and some infrastructure variables in Laos with the time series data from 1995-2020, which have used the Generalized Method of Moments (GMM) and Autoregressive Distributed Lag (ARDL) model approach. The unit root test to check the stationarity of all variables in this study using the Augment Dicky Fuller (ADF) test with considering both level and at first difference. The empirical results of GMM found that the FDI is a major catalyst for economic growth in Laos which has a positive impact and is statistically significant at the level. Similarly, the role of infrastructure variables such as agriculture, industry, and service is the main of the most important indicators in supporting the economic growth in Laos, while telecommunication, electricity, air transport, and trade are positive but insignificant at the level. However, this study also found some variables such as labor, population growth, and life expectancy in support of economic growth which have a strongly positive and significant impact at the level, but the human capital is insignificant at the level. We, therefore, recommend that the government of Laos should attract and sustain more foreign direct investment and increase the infrastructural development to achieve the target of sustainable economic growth in the near future.