The Impact of AFTA on Trade Openness, and Foreign Direct Investment: The Empirical Evidence from Lao PDR

This study looks at how the AFTA has affected trade openness, foreign direct investment, and economic growth in Lao PDR. The impact of AFTA on trade openness and foreign direct investment (FDI) entering Laos is examined using the gravity model method. To examine the long-term connection between variables, Panel Vector Error Correction and Pedroni Cointegration based on Fully Modified Ordinary Least Squares (FMOLS) were also used. The findings show that infrastructure development, disparities in factor endowments between the two nations, the GDP of Laos, and the country's shared border all have a beneficial impact on the entrance of foreign direct investment into the Lao PDR. Moreover, depreciation of domestic currency, sharing border with neighboring countries, and AFTA member countries are also significantly positive effect on trade openness in Lao PDR. However, the distance between the capital city is negatively effect on foreign direct investment and trade in Laos in the long run.