Effectiveness analysis for Japanese ODA impact on growth: Empirical results from Laos

Abstract

Official development assistance (ODA) has shown strong results in economic development in many least-developed countries. It strengthens growth along with FDI and private investments. However, the significance of ODA depends on the host country and donors. The effectiveness of ODA in Laos has not yet been examined. This investigation deeply explores the relationship between Japanese ODA and the economic growth in Laos by using variables such as ODA funds, industrial investment, and exports of Laos in association with growth effectiveness. In the analysis, the data on ODA from Japan was used as a key factor for the growth in Laos – it is a vital component of this study. The analysis was conducted for 30 years of data (1990-2020) and utilized a vector error correction model with a unit root test and Johansen approach. In the long run, the ODA, as the main independent variable, had a positive effect on growth and industrial investment in Laos, but exports exhibited a negative effect on growth. Furthermore, in the short term, there was no sign of a positive relationship between ODA from Japan and the growth of Laos; exports also had a negative relationship to growth. Conversely, the variable of industrial investment had a positive effect on growth in the short term. However, the empirical results demonstrated growth effectiveness from the involvement of Japanese ODA funds in Laos in the long run.