A study on the impact of foreign direct investment on economic development of Lao P.D.R.

This study seeks to analyse FDI inflows into Laos and to investigate their impact on the economic development of Laos. The desired outcome of this research aims at confirming the linkage between FDI inflows in Laos and the economic development indicators including GNI per capita, financial capital, level of technology, human capital, energy and natural resources, transportation and communication.
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A study on the impact of foreign direct investment on economic development of Lao P.D.R. MINISTRYOFEDUCATION MINISTRYOFEDUCATIONANDTRAININGLAOSNATIONALUNIVERSITY NATIONALECONOMICSUNIVERSITY KHAMSENSISAVONG ASTUDYONTHEIMPACTOFFOREIGNDIRECT INVESTMENTONECONOMICDEVELOPMENTOFLAO P.D.R. (DevelopmentEconomics) Code:62.31.01.05 AdissertationsummarysubmittedtotheNationalEconomics University infulfillmentofrequirementsforthedegreeof DoctorofPhilosophyinEconomicsHanoi,201423 CHAPTER1:INTRODUCTION 1.1 ResearchBackground Laosisasmalllandlockedcountrywithanareaof236,800squarekilometers.ItsharesitsborderswithVietnamintheEast,ChinaintheNorth,andCambodiaintheSouth,ThailandandMyanmarinthewest.Twothirdofthecountryismountainous(northernpart)thusitsgeographiccircumstancesconstrainboththequalityandquantityofagricultureandcause difficulties to the development of trade, social infrastructure andtransportation and communication links. However, the country hastransformedfromalandlockedtoalandlinkandcrossroadtootherpartsoftheworld. In 1986, the Lao government implemented the New EconomicMechanism (NEM) to open the country and provided incentives fordevelopersandinvestorsandmovedfromacentrallyplannedeconomytoamarketorientedeconomicmodel. FDIinflowsinLaoshavegrowndramaticallyoverthepastdecadeandhaveplayedanimportantroleinthegrowthoftheworldeconomyaswellastheASEANNations.Inthedevelopingworld,FDIhasbecomethemoststableandlargestcomponentofcapitalflows.Asaresult,FDIhasbecome an important alternative in the development finance process(GlobalDevelopmentFinance,2005.) Laos is a small and still poor country. Therefore, the investmentfromforeigncountriesintermsofFDIisneededbecauseFDIplaysanimportantroleinjobcreation,economicgrowth,capitalinflow,technologytransfer, human resource development, and wealth in the host country.Thanks to the economic reform, the number of FDI projects and theincomeoninternationaltradehaveincreasedsignificantlyandhavehada4directimpactonnationalincomeaswellasGDPgrowth. 1.2 RationalefortheResearch IthasbeensuggestedthatForeignDirectInvestment(FDI)inflowshaveplayedanimportantroleinpromotingeconomicgrowthindevelopingcountries,especiallyintheSoutheastAsiancountries(Nguyen,2008). GiventheimportanceofFDIespeciallyindevelopingcountrieslikeLaos, theoretically as well as practically, there are however stillinconclusive arguments for and against the role of FDI inflows inenhancingeconomicdevelopmentinacountry(cf.,Nguyen,2008).Ithasstill been debate about whether FDI inflows are beneficial or not toeconomicdevelopment,andwhatgovernmentsshoulddotoattractanduseFDI inflows effectively (Kokko et al., 2003; Longani & Razin, 2001;Masina,2002;Nguyen,2008).Inaddition,ithasbeensuggestedthattherelationshipbetweenFDIandeconomicgrowthmaybecountryandperiodspecific (cf., Adegbite & Ayadi, 2010). Therefore, this study aims toexplore the impact of FDI inflows on some indicators of economicdevelopmentinthecontextofLaos,adevelopingcountryinAsia. 1.3 ResearchObjectivesandResearchQuestions ThisstudyseekstoanalyseFDIinflowsintoLaosandtoinvestigatetheirimpactontheeconomicdevelopmentofLaos.ThedesiredoutcomeofthisresearchaimsatconfirmingthelinkagebetweenFDIinflowsinLaosand the economic development indicators including GNI per capita,financialcapital,leveloftechnology,humancapital,energyandnaturalresources,transportationandcommunication. Thisresearchtriedtoanswerthequestions:1)Whataretherelevantliterature and the theoretical background on FDI and its impact on5economicdevelopment?and2)DoesFDIhaveasignificantcontributiontoeconomicdevelopmentofLaos? Withregardto theimpact of FDI oneconomic development, theresearchaimstoanswerthefollowingspecificquestions: DoesFDIhaveasignificantroleontheGNIpercapita? DoesFDIhaveasignificantroleontheFinancialCapital? DoesFDIhavea ...