Economies Of Neighboring Countries,FDI From Multinational Enterprise And The Economic Development Of Laos

The Asian Financial Crisis in1997and the Financial Tsunami in2008have significant adverse impacts on the financial systems all over the world. In2011, the annual GDP growth rate of OECD countries is only1.5%. The world economy has lost its driving force for sustainable growth. Therefore the Asian market is now becoming the focus of the economic development of the world. Global investors are now having their eyes on the rapid expanding Southeast Asian countries, such as Laos, Cambodia and Myanmar.Although Lao has been one of the least developed countries in the world, after over20years of economic reform, Lao is attracting more and more foreign investments and becomes one of the fastest growing economies in the whole. Countries in Southeast Asian have put much effort in collaborating with neighboring countries through policies like tax incentives etc. Due to the boosting economic development, there will be more and more trading and investment activities. After the economic reform, the investment environment in Lao has been improving. Benefiting from the boosting economies of neighboring countries, the amount of FDI from Thailand, China and Vietnam is growing very rapidly.However, with economic boost and ever increasing investment, Lao government must closely monitor the impacts from all these rapid changes and hence formulate and implement the right policies. Lao should be closely working with its neighbor, such as China, Thailand and Myanmar to achieve a win-win situation with all these countries. This research focuses on FDI of Lao. Together with the GDP, FDI capital stock and productivity of China and Thailand, theoretical and empirical research will be carried out to analyze the effect of FDI on Lao, providing insights for Lao government to implement suitable policies.The summary of each chapter:Chapter1:This chapter clearly states the research topic, targets and meanings behind the research. With a well-defined framework of the research, all chapters of this thesis will be firmly adhered to the focal point of the research.Chapter2:Through comprehensive literature review, we will consolidate any important theories regarding the impact of the economic development and integration on FDI in development countries. Then, the research on the impact of FDI on the economic development and employment of host countries will be summarized. Such summary can serve as the backbone of the whole research, providing guidance to all theoretical and empirical analysis afterwards.Chapter3:This chapter will review the economic background, the development of FDI and investment environment of Laos. Such reviews can serve as the foundation for our later analysis of the interrelationship between FDI and Laos’ economy. To start, we will summarize the background information of Lao, such as its history, geography, political situation, economy and culture. More understanding of Lao can facilitate the theoretical and empirical research thereafter. The chapter will be followed by the trend of FDI in Lao and the analysis of the development of FDI in Lao. At the same time, the impact of the policy of economic reform, such as law amendment, on the investment environment of Lao will be analyzed. Finally, as Laos’ government has recently been using Special Economic Zone as the tool to attract more FDI. SWOT analysis will be carried out to analyze the Opportunities, Threats, Strength and Weakness. As a result, this research will suggest appropriate policies for the Lao government such that with reference to the experience of successful countries, Lao can utilize SEZ as the essential tool for economic transform and development.Chapter4:After literature review and comprehending the important background information, like political, economic, cultural and investment development etc, of Lao, this chapter will analyze the impact of the economic development of neighboring countries and FDI on Lao. This chapter links all other chapters in this thesis together and is the focal point of this study. This chapter starts with the analysis of the impact of the economic development and integration of neighboring countries on Laos’ economy. After know that the close economic relationship with its neighboring countries will boost the FDI development of Lao, we will then analyze the impact of FDI on Laos’economic growth, employment and environment. Lastly, this chapter will summarize how the economies of neighboring countries affect the long-term economic development of Lao through FDI.Chapter5:Theoretical analysis ends and here comes the empirical research of the thesis. As the validity of any empirical research very much depends on the quality of data and the appropriate use of econometrics model, this chapter will introduce the statistical models that will be used in later chapters, ensuring the readers can have a clearer understanding of the empirical results.Chapter6:With the statistical tools, empirical research will be carried out in Chapter6and7, analyzing the impact of FDI on Lao’s economic development. It will be started with chapter6, analyzing how the interrelationship between the economies of Lao and its neighbors. Due to the limitation of the number of sample, we should choose the countries with most significant impact on Lao for our empirical analysis. As China and Thailand and the most important contributors to Laos’ FDI, and the Lao government has recently been implementing policies to develop a closer economic relationship with China and Thailand, in this chapter, we decided to choose China and Thailand to be the representatives in our analysis of the impact of the economies of neighboring countries on Lao.Firstly, VECM impulse response and variance decomposition will be used to analyze the interrelationship between GDP, FDI and productivity of Lao and Thai economy. Then, with the introduction of Lao’s another neighbor, the dynamic relationship between the economies of Lao, Thailand and China will be analyzed.Chapter7:This chapter serves as the analysis of the impact on Lao’s economy. We will start this chapter by investigating the development and forecast of Lao FDI by Seasonal Nonlinear Autoregressive Model. Then, Structural Vector Error Correction Model will be used to analyze the impact of FDI on Lao’s economic growth and productivity. Finally, accounting for the heteroskedasticity found in the data sample, Generalized Autoregressive Conditional Heteroskedasticity Model will be used to analyze the interrelationship between FDI capital stock and Lao GDP.Chapter8:In accordance with the theoretical and empirical analysis, we will propose appropriate policies for Lao government, utilizing the benefits from FDI introduction and minimizing the adverse impact from FDI.Chapter9:This chapter concludes the whole thesis by replying to the questions proposed in chapter1.