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Table 17. FDI and GNI per capita Coefficient of Correlation
FDI, net inflows (BoP,
GNI per capita (constant 2005 US$)
As indicated in Table 17, Pearson correlation of FDI inflows and
GNI per capita is 0.881 (p < 0.05), that confirms a strong correlation
between FDI inflows and GNI per capita. It implies the significant and
important role of growth of FDI inflows on the growth of GNI per capita.
5.2 FDI and Financial Capital
Table 18. FDI and Financial Capital Coefficient of Correlation
(annual % services
deflator (annual %)
As indicated in Table 18, the results show that FDI inflows was
significantly correlated with the Gross capital formation (% GDP), Debt
service on external debt, longterm (TDS, current US$), and Debt service
on external debt, total (TDS, current US$).
Figure 11 presents the graph of correlation between FDI and long
term debt service on external debt.
Figure Graph of Correlation between FDI and longterm debt service
on external debt
5.3 FDI and Level of Technology
Table 19. FDI and Level of Technology Coefficient of Correlation
Industry, value added (% of GDP)
FDI, net inflows Pearson Correlation
As indicated in Table 19, the correlation of FDI inflows and Industry
value added (% of GDP) is 0.838 (> 0.5) that confirms a strong correlation
between these measures.
5.4 FDI and Human Capital
As indicated in Table 20, in the 19902012 period, the FDI inflows of
Laos had strongly positive relationship with the indicators of Human
Table 20. FDI and Human Capital Coefficient of Correlation
y at birth,
tertiary (% gross)
(% gross) (% net)
Sig. (2 .001
5.5 FDI and Energy and Natural Resources
The correlation results indicates a weak correlation between FDI and
Energy and natural resources.
Table 21. FDI and Energy and Natural Resources Coefficient of Correlation
Energy and Natural
FDI, net inflows
Oil consumption per capita (bbl/day per 1000
5.6 FDI and Transportation and Communication
As indicated in Table 22, in general, the FDI inflows of Laos had
strongly positive relationship with indicators of the Transportation and
Table 22. FDI and Transportation and Communication Coefficient of
registered Mobile broadban
cellular d Internet
departure subscripti subscribe
Roads, total network
In summary, in this study the author employed the method of
correlation analysis to test the relationship between FDI inflows and
various indicators measuring six aspects of economic development in the
context of Laos over the period 19902012. The research findings in general
provide empirical evidence to support the important and positive role of
FDI inflows on economic development.
CHAPTER 6: CONCLUSIONS AND DISCUSION
This research aims to explore the role of FDI inflows on economic
development in Laos, a developing country which has received very
mosdest research attention to date. The correlation analysis method was
employed to serve this purpose. The research results show that in general,
FDI plays a significant role on economic development. Specifically, FDI
inflows were found to be positively correlated with almost all indicators
measuring six aspects of economic developent. The research findings are
summarized in the following.
FDI and GNI per capita: The findings suggest an important role of FDI
inflows on GNI per capita by showing a strongly positive correlation
between the two measures.
FDI and Financial Capital: The findings show that FDI inflows are
significantly and positively correlated with some indicators of financial
capital including the Gross capital formation (% of GDP), the Debt
service on external debt, longterm (TDS, current US$), and the Debt
service on external debt, total (TDS, current US$).
FDI and Level of Techonology: The findings show that FDI inflows has
a positive and important role on level of techonology, based on a strong
and positive correlation between FDI and the Industry value added (%
FDI and Human Capital: The findings show that FDI inflows are
significantly correlated with all five indicators of human capital. All
correlation coefficients are positive, except the one between FDI and
Mortality rate, under5 (per 1,000 live births). This results may need to
have further study for clarify the relationship between the two measures.
The strongest correlation is the one between FDI and School enrollment,
tertiary (% gross).
FDI and Energy and Natural Resources: The findings failed to provide
empirical evidence for the significant role of FDI inflows on Energy and
Natural Resources. Perhaps, it is partly due to the measure limittaion of
Energy and Natural Resources with only one indicator the oil
consumption per capita. This may need further exploration with more
FDI and Transportation and Communication: The findings suggest that
in general FDI inflows have an important and positive role on the
Transportation and Communication, by showing significantly positive
correlations between FDI and five indicators of Transportation and
Communication including Air transport, passengers carried, Air
transport, registered carrier departures worldwide, Mobile cellular
subscriptions (per 100 people), Internet users (per 100 people), and
Roads (total network km). The strongest correlations are those
between FDI and Roads (total network km), Mobile cellular
subscriptions, and Internet users.
6.2 Implications of the Study
From theoretical perspective, this study is important because it
contributes to better understanding the relationship between FDI inflows
and economic development in the context of a developing country. This is
especially interstesing and important since the research context in this
study is Lao P.D.R., a country that has received very little research
attention from scholars up to date. Therefore, the findings from this study
help to enrich the literature on FDI and its role on economic development
in general and in developing countries, in particular.
In addition, in this study the author empirically examined the
relationship between FDI inflows with a number of aspects of economic
development, rather than just focusing on one aspect as in many previous
Implications for policy makers
On the basis of the findings, this study is also expected to provide a
number of implications for policy makers in Laos with the purpose of
making effective use of FDI for enhancing economic development in this
country. Some implications and suggestions are presented in the following.
Promoting and attracting FDI inflows: it is important for policy makers to
develop appropriate policies to create favorable environment to attract FDI
Maximizing the effective impact of FDI on economic development: Laos
government may need to put sufficient investment into upgrading
infrastructure and developing human capital so that the country can
maximize the techonological spillovers and other benefits associated with
FDI inflows. Policy makers in Laos also need to work on the necessary
activities and developing relevant policies to promote favorable
environment for FDI and enhance the government’s capability to
maximize the benefits of FDI inflows.
Enhancing capabilities of controlling and regulating FDI for better
economic development: Laos government needs to develop its capabilities
of controlling and regulating FDI for better economic development. FDI
should be directed to the right sectors and areas so that the economy can
have sustainable development. The government also needs to have ability
to select the appropriate FDI projects, develop relevant policies toward
different types of FDI projects, and have ability to make decision of
rejecting some inappropriate projects.
Developing an effective mechanism affecting foreign direct investors to
ensure mutual benefits of the foreign investors and the host country’s
6.3 Limitations of the Study and Future Research Direction
First, regardless of the long period of the data collected (19902012),
some variables had limited and small number of observations, like
the Energy and Natural Resources data which gave mixed results of
the unavailability of that data.
Second, with regard to measurement issue, there is some limitation
in terms of a limited number of indicators measuring some variables
in this study. For example, Level of Techonology and Energy and
Natural resources each was measured by only one indicator. Future
research should use more comprehensive scales with multiple items
to increase the validity of the results.
Third, many other aspects of economic developemnt could be
affected by FDI inflows other than the ones selected in this study.
The future research could explore the impact of FDI on more aspects
of economic developemnt.
Fourth, in this study the author just explored the role of FDI on
economic development by empirically examined the correlations
between FDI inflows and various indicators of economic
development in Laos. It would be desirable for future research to test
the impact of FDI on economic development employing more
advanced technique such as regression.
Another suggestion for future research would be having a micro
level analysis for Laos to come up with a reform strategy for
improving their GNI per capita following the path in accomplishing
that goal. Future research could also examine the factors influwncing
the attraction of FDI inflow to Laos.