Enlargement of Economic Framework in Southeast Asia and Trade Flows in the Lao People’s Democratic Republic

Date: April 2014
Type: Papers and Briefs
Country:
Subject:
Series: Regional Economic Integration Working Papers
Author: Suvannaphakdy, Sithanonxay; Tang, Hsiao Chink; DiCaprio, Alisa

Description

Using an unbalanced panel dataset of bilateral exports from 1992 to 2009, this paper assesses the potential trade impacts of the expansion of the Association of Southeast Asian Nations (ASEAN) to ASEAN+3 and ASEAN+6 on the Lao People’s Democratic Republic (Lao PDR). It finds that bilateral exports are positively related to the overall bilateral country size and similarity in country size, but inversely related to the relative factor endowment differences, transportation costs, and import tariffs.

Simulation results show that the formation of free trade agreement between ASEAN and the Plus-6 economies (the People’s Republic of China, Japan, and the Republic of Korea in East Asia; and the other three economies of Australia, India, and New Zealand) can increase bilateral trade between the Lao PDR and ASEAN+6 by $1 billion, and ASEAN+3 by $981 million.

Nonetheless, trade balance of the Lao PDR is likely to worsen in both the ASEAN+3 and ASEAN+6 free trade agreements because they stimulate more imports than exports.

Contents

  • Abstract
  • Introduction
  • Trade between Lao PDR and ASEAN+6: Some Stylized Facts
  • Model Specification
  • Data and Estimation Issues
  • Results and Policy Implications
  • Conclusions
  • References
  • Appendixes