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trade enables inexpensive and quality consumer goods to be exchanged worldwide
in spite of geographical boundary (Boudreaux, 2009). Laos jointed The ASEAN
Free Trade Area (AFTA) in 1998. International trade plays an integral role in
Lao economic development and it contributes financially to poverty eradication (Kyophilavong,
Record, Takamatsu, Nghardsaysone, & Sayvaya, 2016). Other expert might
claim that there are disadvantages of Lao trade liberalization such as a
reduction in tax revenue and trade deficit (Suvannaphakdy, Tang & DiCaprio,
2014). However, this essay will argue that socio-economic benefits include economic
growth and rising living in Laos far outweigh the aforementioned drawbacks.

Paragraph 1: Economic benefits

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a.       Openness
to trade enables Laos to export more domestic products such as agriculture and
mineral goods to its trading partners without experiencing high tariff rates.
As a result, Lao export companies are able to expand their markets oversea (market

b.      Free
trade encourages market competition
among domestic and foreign firms that specialized in particular
products (e.g., textile, silks
and gems). As a consequence, these firms will contribute actively to the
economic growth.

creation and income distribution are two key components needed for
accomplishing poverty elimination in most developing nations (United Nation,
2013).  In relation to this, compelling
evidence from Kyophilavong and Oh (2013) and Kyophilavong, Record, Takamatsu, Nghardsaysone,
and Sayvaya (2014) suggest that ASEAN Free Trade Area (AFTA) and ASEAN-Korea Free
Trade Area (AKFTA) have positively influenced economic inequality in Laos.  One of major benefits indirectly derived from
such trading agreement is wage increase for the working class (Kyophilavong et
al., 2016). Along similar lines, Phommahaxay (2013) put forward the claim that
since Laos opened itself to foreign trade and consequently FDI has flowed
largely into hydropower, mining and manufacturing sectors.  This is results in employment creation,
allowing unskilled and skilled workers to access jobs and thereby reducing income
inequality.  In contrast to this view, Pettis
(2014) contends that German and China have experienced greater income
inequality because of international trade. Nonetheless, the impact of free
trade on inequality varies from one country to another and it may depend on
many factors including, trade pattern, characteristic of the economy, FDI
promotion policies to determine the favorable outcome of free trade. In the
case of Laos, most of the available evidence in relation to the impact of free
trade on poverty elimination  seems to
point out that wealth inequality improve partly due to free trade (Kyophilavong
et al., 2016; Kyophilavong & Oh, 2013). However, the clear advantages of
international trade will be fully realized when proper infrastructures, an
access to credit, education and the support of modern farmer practices are
available countrywide (Soukavong, 2012). Apart from economic benefit, citizen
benefit gained from international trade should also be noted. A decline in the
cost of living is likely to lead to higher purchasing ability of the
underprivileged ones, in turn, rising their standard of living (World Trade
Organization, n.d., para. 3). Therefore, trade liberalization does matter to
the poor as a variety of products in the market become more accessible to them.
To support this argument, Pavcnik (2009) states that, “Obviously, protectionism
would make consumers in poor countries worse off: higher import taxes make
imported products more costly and enable domestic firms to charge higher prices
as well. This means that consumers can afford fewer goods”( para. 4). The same
case applies to Laos, the finding in Soukavong (2012) indicates that the import
of commodity price have been reduced remarkably in 2007. Under this
circumstance, low-income earners are able to afford consumption goods and
capital goods at lower prices thanks to AFTA. To further promote Lao trade, there
are a number of appropriate trading policies and FDI promotion policies needed
in order to address the negative effects of free trade such as trade deficit
(Kyophilavong et al., 2016). Otherwise, maximum benefits of free trade are
confined to Lao’s major trading partners.

On the balance,
the overall picture seems to be that international trade helps foster Lao
socio-economic development and therefore strengthen the poverty reduction. Economic
growth and higher standard of living are attributed to free trade.




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