6.5. Simulation Design
Laos will gain various economic benefits from AFTA. The possible impact of AFTA on Lao
economy is shown through four simulationscenarios as follows:
Simulation scenario 1
The impact of AFTA on the Lao economy through reduced tariff rates. We assume that the
Common Effective Preferential Tariff (CEPT) Scheme for AFTA will reduce to 0% in
2015
19
.
Simulation scenario 2
The effects of an improvement in trade facilitation and in time costs reducing overall trade
costs.
This approach is followed by Hertel, Walmsley, and Itakura (2001); Minor and Tsigas (2008)
and Stone and Strutt (2009).We assume a reduction in costs of 25%
20
in the Lao economy.
18
The poverty line was set at the $1.25 poverty line comes to 142,181.56 kip per month ($38) for 2005.
following by Engvall et al (2009).
19
We do not consider the effects from the service sector.
20
We will shock ams(i,r,s) 10% for reducing cost by25% (From Laos to ASEAN countries and from ASEAN
countries to Laos)
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