The Resource Curse Hypothesis in Lao Economy

Soukvisan Khinsamone


The purpose of this paper is to investigate the adaptability of the resource curse hypothesis for Lao economy. The study verifies the two crowding-out logics that resource abundance would crowd out manufacturing activities and/or savings and investment, by examining their causalities and impulse responses in a vector auto-regression (VAR) model estimation. The estimation outcomes implied the existence of the resource curse in Lao economy: resource production has crowded out manufacturing activities through real exchange rate appreciation, thereby causing the Dutch Disease; and resource production has not contributed significantly to capital accumulation, thereby being not consistent with Hartwick-rule. The study contributed to the literature by verifying two kinds of crowding-out logics on the resource curse by applying a VAR model: the crowding-out of manufacturing activities as a sectoral allocation, and the crowding-out of savings and investment as an intertemporal allocation. The study might also be valuable to the policy makers, since it proposed a strategy for transforming Lao economic structure from “resource curse” to “resource blessing” by setting up some institutional framework to allocate resource revenues to infrastructure development.

Full Text:



Alexeev, M., & Conrad, R. (2009). The elusive curse of oil. The Review of Economics and Statistics, 91(3), 586-598.

Auty, R. (1993). Sustaining Development in Mineral Economies: The Resource Curse Thesis. Oxford University Press, New York.

Boschini, A. D., Pettersson, J., & Roine, J. (2007). Resource Curse or Not: A Question of Appropriability. Scandinavian Journal of Economics, 109(3), 593–617.

Bourdet, Y., & Falck, H. (2006). Emigrants' Remittances and Dutch Disease in Cape Verde. International Economic Journal, 20(3), 267-284.

Clark, C. (1940). The Conditions of Economic Progress. Macmillan, New York.

Collier, P., & Hoeffler, A. (2000). Greed and Grievance in Civil War. Policy Research Paper (The World Bank) No. 2355.

Corden, W. M., & Neary, J. P. (1982). Booming sector and de-industrialization in a small open economy. The economic journal, 92(368), 825-848.

Davis, G. A. (1995). Learning to love the Dutch disease: Evidence from the mineral economies. World development, 23(10), 1765-1779.

Demachi, K., & Kinkyo, T. (2014). Macroeconomic Management in Resource-Rich Developing Economies. Kokuminkeizaizassi, 210(3), 55-67.

Edwards, S. (1986). A Commodity Export Boom and the Real Exchange Rate: The Money-Inflation Link. MIT Press, Cambridge.

Frankel, J. A. (2010). The natural resource curse: a survey (No. w15836). National Bureau of Economic Research.

Gelb, A. H. (1988). Windfall Gains: Blessing or Curse?, Oxford University Press, New York.

Gylfason, T., Herbertsson, T. T., & Zoega, G. (1999). A mixed blessing. Macroeconomic dynamics, 3(2), 204-225.

Harding, T., & Venables, A. J. (2013). The Implications of Natural Resource Exports for Non-Resource Trade. OxCarre Research Paper, 103.

Hartwick, J. M. (1977). Intergenerational equity and the investing of rents from exhaustible resources. The american economic review, 67(5), 972-974.

Ilzetzki, E., Reinhart, C. M., & Rogoff, K. S. (2011). The country chronologies and background material to exchange rate arrangements into the 21st century: Will the anchor currency hold. Retrieved from Country_Chronologies_2011.pdf.

Insisienmay, S., Nolintha, V., & Park, I. (2015). Dutch disease in the Lao economy: Diagnosis and treatment. International Area Studies Review, 18(4), 403-423.

International Monetary Fund. (2012). Macroeconomic Policy Frameworks for Resource-Rich Developing Countries, International Monetary Fund. Retrieved from

Ismail, K. (2010). The Structural Manifestation of the 'Dutch Disease': The Case of Oil Exporting Countries. International Monetary Fund Working Paper, 10/103.

Johansen, S. (1995). Likelihood-based Inference in Cointegrated Vector Autoregressive Models. Oxford University Press, New York.

Karl, T. L. (1997). Paradox of Plenty. University of California Press, Berkeley and Los Angeles.

Kyophilavong, P., & Toyoda, T. (2009). Foreign capital inflows in the natural resources sector: Impacts on the Lao economy. International Seminar on Skills Development for the Emerging New Dynamism in Asian Developing Countries under Globalization. The First Annual Conference of the University Network for Development in Asia (UNDA), Pathumwan Princess Hotel, Bangkok, Thailand, January 23-25, 2009.

Kyophilavong, P., Senesouphap, C., & Yawdhacksa, S. (2013). Resource Boom, Growth and Poverty in Laos: What Can We Learn from Other Countries and Policy Simulations?. PEP (Partnership for Economic Policy) Working Paper, No. 2013-05.

Manzano, O., & Rigobon, R. (2008). Resource Curse or Debt Overhang. National Bureau of Economic Research Working Paper, No. 8390.

Mehlum, H., Moene, K., & Torvik, R. (2006). Institutions and the Resource Curse. Economic Journal, 116, 1-20.

Sachs, J D., & Warner, A. M. (1995). Natural Resource Abundance and Economic Growth.

Sachs, J. D., & Warner, A. M. (2001). The curse of natural resources. European Economic Review, 45(4-6), 827-838.

Said, S. E., & Dickey, D. A. (1984). Testing for Unit Roots in Autoregressive-Moving Average Models of Unknown Order. Biometrika, 71(3), 599.

Ramey, G.. & Ramey, V. A. (1995). Cross-Country Evidence on the Link between Volatility and Growth. American Economic Review, 85(5), 138–1151.

Van der Ploeg, F. (2011). Natural resources: Curse or blessing?. Journal of Economic Literature, 49(2), 366-420.

World Bank. (2011). The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium, the World Bank.



  • There are currently no refbacks.

Journal of Asian Development  ISSN 2377-9594   E-mail:

Copyright © Macrothink Institute 

To make sure that you can receive messages from us, please add the '' domains to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', please check your 'spam' or 'junk' folder.