Impacts of Trade Liberalization in the Least Developed Countries: Evidence From Lao PDR

Abstract

This study empirically investigates the effects of tariff reductions in a least developed country on its economy. Specifically, we focus on tariff reductions based on the ASEAN Free Trade Area (AFTA) in Laos. First, we analyze how the reduction of AFTA tariff rates in Laos affects Laos's imports from AFTA member countries. Our main finding is that the reduction of AFTA tariffs in Laos does not significantly change Laos's imports. Second, we investigate their effects on plant-level employment. Consistent with the observation of a negligible change in Laos's imports, we find no significant changes in plant-level employment. In short, although Laos decreased its tariff rates against other AFTA members, imports from them did not significantly increase, and no significant changes occurred in employment. We discuss several possible reasons for these insignificant effects.