Trade, Growth and Poverty in the context of Lao PDR Dr. Yan Wang Senior Economist The World Bank Ywang2@worldbank.Org Prepared for the joint workshop on Lao PDR: Trade and The Integrated Framework Vientiane Lao PDR, June 28-30, 2004
Outline Why trade global context? For export and economic growth For job creation and poverty reduction How have other countries liberalized? China and others Trade as a part of poverty reduction strategy for Lao PDR Key issues and challenges 2
I. Why Trade Integration? Gains from global trade reform potentially large and widely shared, according to a World Bank study using linkage model High trade barriers, esp in industrial countries, remain a concern Need to take adjustment and poverty impacts into account 3
40 35 Base Year Tariffs (percent) Agric Proc. Food Nat. Res. Txt. & App. Oth. Manf. 30 25 20 15 10 5 0 Industrial Low-income Middle-income Source: World Bank, 2004. 4
Base Year Agricultural hya Protection (billions of 1997 dollars) jpn eur Export Factor Input Output Tariffs usa 0 10 20 30 40 50 60 70 80 Source: Will Martin 2004 5
Global gains from trade reform Change in real income in 2015 from baseline scenario ($billion) 450 400 350 All Ag & Food Manuf 300 250 200 150 100 50 0 Industrial Developing World Source: Dominique van der Mensbrugghe and John Beghin 6
II.How have others liberalized? China started its rural reform in 1979 and opened up in early 1980. Both trade and FDI increased dramatically and led to rapid growth and poverty reduction Growth: Real GDP has grown an average 9.4 percent a year since 1979. Poverty: Using the World Bank s $1/day consumption measure, the number of poor declined from 360 million in 1990 to 223 million in 1999 (and 161 million in 2002). Openness has created growth centers in coastal regions which created millions of jobs for rural workers good for poverty reduction. But it led to income inequality. 7
The Share of trade in goods and services in GDP (%) [import+export] 60 50 40 30 20 China India Brazil 10 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Source of data: World Bank World Development Indicators and Global Development Finance Database, August 2003 8
The share of FDI in GDP (%) 7 6 5 4 3 China India Brazil 2 1 0 1981 1983 1985 1987 1989 1991 Source: World Bank World Development Indicators and Global Development Finance Database, August 2003 1993 1995 1997 1999 2001 9
60 50 China s growth, poverty reduction and inequality, 1981-2000 Average Per-capita GDP Grow th 1981-84 1985-89 1990-93 1994-96 1997-00 10.1% 7.2% 10.9% 8.9% 6.7% 50 45 40 Poverty Rate based on income Gini Index 40 30 20 35 10 30 0 1981 1984 1989 1990 1993 1996 1998 2000 Source: Chen and Wang (2001) 25 10
Regional income disparities, 1978-2001 0.68 0.58 0.48 0.38 0.28 0.18 11 Standard Deviation of Log of Per Capita Income 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Coast versus Interior All Provinces Intra-coast Intra-Interior
An example: Labor Mobility Component Of Southwest Poverty Reduction Project SWPR Project areas 3provinces (region) 35 counties 291 townships 1798 administrative villages Agricultural population 4.448 million, 2.235 million laborers 0.73 million surplus laborers 0.28 million laborers were relocated in coastal regions and found jobs, of which, 68% male and 32% female. Actual investment was 490 million yuan. 12
Openness and poverty reduction Directly increased income It was shown in the sample survey, of laborers sent out form 1995 to 2000: The remittance amounted to 1.338 bn yuan, the goods purchased valued to 0.25 bn yuan, totaling 1.59 bn yuan. The production and living condition of project farmers were improved by the remittance: To invest in agricultural production To build houses To pay off the debts To pay the education fees To pay for health 13
III. Lao PDR: Trade Integration as a part of poverty reduction strategy Real GDP grew by 6.3 % per year; Poverty fell - 39% in 1997/98 to 31%, 2002/03; Agriculture grew by 5% per year, faster than most Industry grew 10% a year, services by 6% a year Need to: Expand Job opportunities by Facilitating the private sector development Expanding export (both goods and services) Expanding tourism (a part of services) Strengthen Capacities by Learning by doing, learning from others Education, on the job training and improving health and other services 14
Lao PDR: Poverty Trends Lao PDR Poverty and Inequality, 1992/3-2002/3 1992/3 1997/8 2002/3* Poverty Incidence (Headcount) Urban 26.5 22.1 23.0 Rural 51.8 42.5 33.0 National 46.0 39.1 30.7 Inequality (Gini) National 0.31 0.35 0.33 Source: LECS I to LECS III. *The numbers are still unofficial. 15
Lao PDR: Social Indicators Lao PDR MDGs Averages - MRY 1990 2000 2015 E. Asia SSA S Asia Low income GNP per capita 210 310* 1,000 500 440 410 Adult literacy rate (%) 36 49 85 60 53 40 Total Fertility Rate 6.3 5.4 2.1 5.4 3.4 3.1 Life expectancy 50 54 69 50 62 60 % Population below poverty line (headcount index) 45 39 Poverty and Malnutrition Population below 1$ a day (%) 26 15 14 47 37 % Children underweight ( under 5 years old) 44 40 22 22 33 51 Education and Gender Indicators Net enrollment rate (ages 6-14)** 61 72 100 99 77 77 76 % Cohort reaching grade 5** 53 50 100 93 60 Youth literacy rate (ages 15-24) 55 69 100 97 77 68 85 Ratio of girls to boys in primary and secondary ed 74 77 100 93 85 71 Ratio of literate females to males 52 69 100 98 89 77 Health Indicators Infant Mortality Rate (per 1,000 live births) 108 82 36 59 92 75 68 Under 5 mortality rate (per 1,000) 170 107 56 47 151 89 107 Maternal mortality ratio (per 100,000 live births) 650 530 163 Prevalence of HIV/AIDS(%) 0.1 % Population access to safe water 52 25 16
Potential in Export New Economic Mechanism introduced in 1986 -Foreign trade & inter-provincial trade opened starting 1987, & few export taxes in 1990 -Private investment & FDI opened in 1988 Export/GDP rose from 11% in 1990 to 35% in 2001 Exports grew 9% a year in 1986-90 & 15% in 1991-2000 faster than most countries; Main exports: Coffee, wood, garments, hydro; Tourism accounted for a large share of exports of goods & services 17
Lao PDR has great potential in exporting services: export more than it imports Trade in Services (mil. US$), Lao PDR 200 160 120 80 Exports Imports 40 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: World Bank Global Development Finance (GDF) & World Development Indicators (WDI) Database (April, 2003) 18
Composition of Service Export, Lao PDR Service Exports (mil. US$) & Composition, Lao PDR 200 160 120 80 40 Communications, computer, etc. Insurance and financial services Travel services Transport services 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: World Bank Global Development Finance (GDF) & World Development Indicators (WDI) Database (April, 2003) 19
Summary Trade integration may yield large gains from growth, job creation, and learning by doing. Trade integration is a part of an overall strategy for poverty reduction (see NGPES) Making commitment in regional or WTO negotiations is a good way to lock-in reforms Learn specifics about Lao private sector/exporters constraints; Learn more from other countries experiences Capacity building in trade and WTO is key 20