1
The Effects of AFTA on Macroeconomic Variables and Poverty:
Evidence of Laos
Phouphet Kyophilavong
1
; Richard Record
2
; Shinya Takamatsu
2
;
Konesawang Nghardsaysone
2
; Inpaeng Sayvaya
3
Abstract
The ASEAN Free Trade Agreement (AFTA) plays an important role in regional economic
development. However, whether AFTA contributes to issues of poverty is still not clear.
Therefore, the main objective of this study is to assess the impact of AFTA on poverty using
Laos as a case study. We applied a CGE model and micro-simulation for this study. The
simulation from the CGE model shows that overall, Laos will gain from AFTA through
increasing GDP and welfare gains, and improvements in terms of trade, but will also
experience an increase in trade deficits. The gains from AFTA will mainly come from the
improvement of trade facilitation and significant increase in FDI. The results of the micro-
simulation confirm that Laos will increase in general measures of welfare from AFTA,
especially among rural households. In addition, AFTA might also reduce income inequality at
the national level. It indicates that AFTA will bring positive impacts to the Lao economy,
poverty and income distribution.
Keywords: ASEAN; Laos; CGE model; Micro simulation
JEL Classification: F15; F17
