Drastic Effects of Asian Financial Crisis on Macroeconomic Structural Changes in Lao PDR

Abstract

More than a decade that the world economy has suffered with the destructive incidents from Asian Financial Crisis (AFC) occurred in 1997 and global financial crisis in 2008. Therein, the inception of AFC was derived from Thailand, and Lao PDR also treated as one of the most affected countries from AFC. This article attempts to discover innovative empirical evidence by identifying the drastic effects of AFC on macroeconomic structural changes in Lao PDR. By utilizing a special technique and superior method. Say, Zivot & Andrews structural break unit root testing developed by (Zivot & Andrews, 1992) to endogenously determine a one-time structural break, and the quarterly time series data also adopted in the period of 1990Q1-2006Q4. The empirical evidence substantiated the disastrous incident of AFC had initially affected on exchange rate (1997Q2), followed by consumer price index (1997Q2) and broad money (1997Q2) in the second quarter respectively, whilst total reserves was affected by AFC at the beginning of 1998 (1998Q1) and transmitted its shock to other macroeconomic variables in long run. Similarly, the outcomes strongly averred that AFC has engendered to drastic effects on macroeconomic structural changes in Lao PDR specifically the domestic currency has intensely depreciated (US/KIP) in the history of Lao PDR up to the present. Moreover, policy recommendations were proposed in this paper.

Keywords: Zivot & Andrews Structural Break, Asian Financial Crisis, Macroeconomics Variables, Lao PDR.

DOI: 10.7176/RJFA/11-22-05

Publication date: November 30^th 2020