7.0. SIMULATION RESULTS
7. 1. Impact on macroeconomic variables
Laos will gain large benefits from AFTA. The overall impact of AFTA on Lao economy is
shown in simulation 4. AFTA has positive impact on increasing EV, real GDP, and terms of
trade. But it has negative impact on trade balance. AFTA increases equivalent variation (EV)
about 422 $US million. The increased EV comes mostly from the allocative efficiency
effect.
22
GDP quantity index will increase 9.5%. Terms of trade will increase 3%. However,
it has negative impact on trade balance, trade balance will have negative about 19% (table 7-
1). The effect of AFTA through tariff cut alone does not have much positive impact on Lao
economy in term of GDP and EV. However, the large impact of AFTA will come from
improvement trade facilitation (simulation 2) and increasing of FDI though improvement of
doing business climate (simulation 3). It shows that Laos will gain indirect impact from
AFTA though improvement of trade facilitation and promotion of FDI.
Table 7-1. Impact on macroeconomic variables
Source: authors’ GTAP model results.
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