A Study on the Determinants of Trade Costs and Exports in Laos
Authors:   Asia-Europe Perspective Association, Phousai Soukhameesai Phousai Soukhameesai , Jang Seung-Wook 
Published: December 2024

Laos is the only landlocked country in Southeast Asia, and due to its geographical location, it is expected that trade costs will be higher than those of other countries due to higher transportation and logistics costs than its neighbors. Thus, a strategy that can reduce trade costs through verification of factors affecting trade costs is deemed necessary to revitalize Laos’ economy. Additionally, policies that can bring about an increase in exports through analysis of factors affecting Laos’ exports are also deemed important and necessary for Laos’ economic development.
Thus, in this study, we would like to analyze the factors affecting the trade costs in Laos and suggest ways to reduce the trade costs. And based on the determinants of exports, it presents ways to bring about an increase in exports. This will be achieved by analyzing 43 countries and the trade-related data during the period 2005-2017. The paper extends the standard gravity model to identify the effect of the factors on comprehensive trade costs and exports. In this study, we employed Ordinary Least Squares(OLS), Random Effects(RE) and Fama-Macbeth(F-M), etc. to estimate the parameters.
The results of the regression analysis of comprehensive trade costs showed that the estimated coefficient value of geographical distance had a significantly positive at the 1% level, indicating that trade costs increase significantly as the distance between trading partners increases. Meanwhile, the value of the estimated coefficient of geographical distance2 was shown to have a significantly negative, indicating that the comprehensive trade costs increased sensitively as the distance increased. And the value of the estimated coefficient of the tariffs, exchange rates, and the number of documents is also shown to be a significant impact, indicating that the tariffs, the number of documents, and the exchange rates between trading partners increase in the comprehensive trade costs, it increases significantly. Also, im- provement of the liner shipping connectivity index and the number of Internet of trading partners could reduce time costs and transaction costs by improving the country’s ICT infrastructure and services.
Next, if we look at the results of the regression analysis on the determinants of exports. First of all, the estimated coefficient of the gross domestic product has a positive impact, indicating that as Laos’ gross domestic product (GDP) increases, exports increase significantly. Meanwhile, the value of the esti- mated coefficient of distance was shown to have a significantly negative, and the decrease in tariff rates and the number of documents affects the increase in exports. Also, the estimated coefficient of the liner shipping connectivity index and the number of internet users in the trading partner has a significantly positive, indicating that exports increase as the liner shipping connectivity index and the number of internet users of trading partners increases. Finally, we could see that exports increase significantly as the free trade agreements(FTAs) and the similarity in culture with other countries increases.
To reduce trade costs through this study, trade costs increase as the distance between trading partners increases, but beyond to longer distance, the comprehensive trade costs decreased as distance. Decreasing of tariff rates, exchange rates, and the number of documents is expected to result in a drop in trade costs. Also, it was found that necessary to increase the shipping connectivity index and the number of internet users to reduce trade costs. To increase exports, the GDP of Laos and trading countries has been shown to play an important role in exports, and a drop in tariff rates and the number of related documents is believed to lead to an increase in exports. It also found that an increase in the shipping connectivity index and the number of Internet users could lead to an increase in exports.