The Effects of afta on Macroeconomic Variables and Poverty: Evidence of Laos
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Impacts on industry output
There are winners and losers that will result from AFTA. The top 10 sectors expected to experience an increase in output are shown in table 7-2. AFTA will leadto an increase in outputs from motor vehicles and parts, machinery and equipment, oil, metals, chemicals, rubber, plastic products, electricity, ferrous metals, coal, water, and transport equipment.
22 There are basically four major sources for any welfare change: allocative efficiency effect, endowment effect, technology effect and terms of trade effect (Hanslow, 2000; Adams, 2005). The fourth factor is determined by the change in equity income from ownership of capital endowments which can be broken down into three parts: a change in the domestic capital shock; change in household income earned on capital abroad; and change in the domestic capital owned by foreigners. The allocative efficiency effect is large for a country with high average initial tariffs. In contrast, it may become negative when the extent of trade diversion is large in FTA with relatively low international trade. The terms-of- trade effect is positive for any country with low average initial tariffs and negative for any country which has high initial tariffs.
Variables Unit Simulation 1 Simulation 2 Simulation 3 Simulation 4 Equivalent variation $US dollar 13.61 219.42
189.51 422.53
GDP quantity index % 0.12
3.1 6.79
9.5 Trade balance $US dollar -32.41
-59.22 72.84
-18.79 Terms of trade % 0.56
5.21 -2.34
3.43 28
Table 7-2. Top 10 sectors with increasing outputs Source: authors’ GTAP model results.
sectors which will experience a decline in outputs are sugar, leather products, textiles, crops, dairy products, vegetable oils and fats, apparel, insurance, gas, and petroleum-coal products.
Table 7-3. Top 10 sectors with declining outputs Source: authors’ GTAP model results.
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