Increased Trade Links Offer Greater Economic Opportunity for Lao PDR While Barriers Remain

April 7, 2016

VIENTIANE, April 7, 2016 – The growing Lao economy has become increasingly integrated into the global economy through the ASEAN Economic Community and other regional and global trade pacts. Increased trade links with other countries have translated into increased access to better or cheaper imports such as intermediate inputs for the manufacturing sector and increased demand for exports such as electronic parts and components. Yet further challenges to economic growth remain, according to three new World Bank Group reports released this month.

“Reforms undertaken as part of our accession to the WTO have allowed our private sector to take advantage of increased trade with our neighbors,” said Khemmani Pholsena, Lao PDR Minister for Industry and Commerce. “However, further work is required to ensure an improved business environment and access to competitive services and manufacturing inputs can attract further investment.”

The reports seek to gain a better understanding of the barriers associated diversification in Laos’ resource-rich economy.

“While economic growth has been fueled largely by its rich natural resources, Lao PDR can also focus on diversifying its economy through integrating more closely with its ASEAN neighbors,” said Sally Burningham, World Bank Country Manager in Lao PDR. “Recent World Bank analysis and research stresses the importance of removing non-tariff barriers to increase trade and adding value to Lao PDR’s growing service sector. These steps can spur efforts to end poverty and boost shared prosperity.”

One report, “The Labor Impact of Lao Export Growth”, highlights Lao PDR economy’s structural transformation away from agriculture, but finds that workers are primarily shifting into low-skill non-tradable service activities and that there is no strong concurrent rural-to-urban shift as has occurred in other comparable South East Asian countries.

The report A Comparative Overview of the Incidence of Non-Tariff Measures on Trade in Lao PDR identifies continuing regulatory hurdles and other non-tariff measures such as licensing requirements and related costs that hamper the ability of the country to reap the gains of deeper trade integration.

A third report, Services and Manufacturing Linkages: An Empirical Analysis assesses challenges in building up the services sector of Lao PDR’s economy, in particular the limited role for modern services, such as accounting, finance, or Information and Communication Technologies (ICT). These modern services, which are also important inputs into manufacturing exports, have played transformational roles in many other countries across the world by encouraging diversification and quality upgrading of country exports. Importantly, high quality ICT, air, and land transport services are also essential for the development of the tourism sector.

The three trade policy reports were prepared as a part of a trade-related analytical program of work carried out by the World Bank in Lao PDR, under the Second Trade Development Facility program which included financing by the World Bank, Australia, the European Union, Germany, Ireland, and the United States.