The Impact of Trade Policy Reform on Social Welfare, Inequality and Poverty: The case of Lao PDR

Abstract:In 1997, Lao PRD became a full member of ASEAN and continued trade reform as per AFTA commitments in following year. International trade and economic growth were related during the reform periods. This paper examines the impact of trade policy reform on social welfare, inequality, and poverty in Lao PDR from 1997-2003. In addition, we investigated the effect of price changes under AFTA commitments by the pass-through approach between 2005 and 2007. We also analyzed the social welfare and inequality measurement indices which were based on the Atkinson-(1970) and Sen (1973) approaches by using Lao Expenditure Consumption Survey data. We found that during trade liberalization process could increase households’ social welfare by 196,529 LAK and inequality declined by 10 percent. Moreover, the import commodity prices change under AFTA commitments decreased significantly in 2007 especially consumption goods and investment capital goods. Those effects seem to benefit poor households and farmers who could then purchase lower imported commodity prices and higher quality investment capital goods.