Laos-China railway serves as a key driver for economic growth in Laos. - VT
VIENTIANE (Vientiane Times/Asia News Network): Laos has huge potential to benefit from regional connectivity and economic integration as the land-locked country neighbours several major global trading partners.
According to a new Asian Development Bank (ADB) report, the limited trading basket of Laos indicates that there may be unexploited potential for expanding into more diverse products that are traded with regional and global partners.
“A potential pathway for diversification is developing shared production and export capabilities through greater regional cooperation,” the report stated.
“Therefore, an important issue for national and regional policy is how to encourage the spread of capabilities, technology, knowledge, and network linkages between GMS (Greater Mekong Subregion) neighbouring countries to support per capita growth spillovers.”
The Lao government has prioritised programmes to build road networks, railways and expressways to connect with its neighbours so as to transform the country from a land-locked nation to a land-linked hub.
It’s essential for Laos to leverage its strengths in connectivity and its regional location to grow its economy and increase resilience to external shocks.
The ADB report suggested that GMS member countries, including Laos, will need to grow significantly faster than the more advanced members, so that convergence becomes a reality. Economic policies and interventions for boosting growth and driving the process of structural transformation are therefore critical.
The report also discussed the potential for Laos to upgrade its value chain positioning, diversify its industries, and capitalise on regional cooperation to achieve its development targets.
“Economic upgrading involves building on existing production capabilities while investing in new capabilities to accelerate the process of structural transformation. Production capabilities are shared among products, and as comparative advantage is gained in new products, more opportunities to diversify become available,” the report stated.
Currently, there are only a few sectors in which Laos produces goods that have product complexity and score higher than the global average.
Most of these are associated with primary and low-tech industries. Understanding these opportunities can help to create short-run export diversification opportunities for driving the process of structural transformation.
The ADB report said engaging in value chains can open more opportunities for deepening integration in regional and global trade. Laos’ participation in value chains has increased steadily, but most activities are positioned “upstream”, as a provider of raw materials and primary products that support the production of goods for export activities in other GMS countries.
“Upstream” positioning in value chains is associated with low wages, while “downstream” positioning is associated with higher wages. It is therefore important to deepen integration in value chains, particularly in “downstream” activities. Promoting cities and improving connectivity are an integral part of this.
