The Dynamic Relationship Between the Services Trade Sector and Economic Growth in the Lao People's Democratic Republic*

Abstract

In the Lao People’s Democratic Republic (Lao PRD), the services sector accounts for more than 41% of GDP and more than 80% of total trade (World Bank, 2021). Empirical studies show that most of the services trade occurs in the travel and tourism sectors, accounting for more than 50% of the total services trade in the Lao PDR. The services sector also plays an essential role in the Lao PDR’s wholesale and retail sectors, which employ the most significant number of people across all services sectors. The services trade balance was in a surplus between 1997 and 2011, though in 2012, it entered a significant deficit that continues to the present. This study investigates the link between services trade and economic growth in the Lao PDR, building on a recent analysis of the services trade in various economic and economic growth. The authors use econometric methods such as the autoregressive distributed lag (ARDL) bound test and the Granger causality test to analyze time-series data for the Lao PDR from 1990 to 2019. The econometric results demonstrate the long-run relationship between economic growth and variables related to the services trade. This indicates the government and policymakers of the Lao PDR should invest in infrastructure, particularly in trade facilitation and the liberalization of the services sector, to facilitate the acceleration of economic growth.