Effects of AFTA on Poverty

Evidence from Laos

The Association of South-East Asian Nations Free Trade Agreement plays an important role in regional economic development. However, Association of South-East Asian Nations Free Trade Agreement’s contribution to poverty reduction remains unclear. Therefore, the main objective of this study is to assess the impact of Association of South-East Asian Nations Free Trade Agreement on poverty using Laos as a case study. To do so, we apply a Computable General Equilibrium model, microsimulation, and a logit model. Laos benefits from Association of South-East Asian Nations Free Trade Agreement but has also experienced an increase in its trade deficit. The primary benefits from Association of South-East Asian Nations Free Trade Agreement derive from the improvement in trade facilitation and a significant increase in Foreign Direct Investment. Association of South-East Asian Nations Free Trade Agreement may also reduce income inequality at the national level. However, Association of South-East Asian Nations Free Trade Agreement could cause disparities between the so-called winners and losers. The beneficiaries of Association of South-East Asian Nations Free Trade Agreement might be limited to households that have access to land, irrigation, road, and electricity.