Author(s)

Ran Liu ¹, Baoquan Li ¹

Affiliation(s)

¹ Planning & Financial Affairs Department, Kunming University, Kunming, Yunnan, China

Corresponding Author

Ran Liu

ABSTRACT

Laos is a key node nation in the "Belt and Road" program, and as such, foreign investment is crucial to its economic growth. Therefore, studying the impact of China's FDI in Laos on its industrial structure is of great practical significance. To this end, this paper studies the impact of China's foreign direct investment (FDI) in Laos on the proportion of Laos' primary, secondary and tertiary industries, and evaluates the specific effect of FDI on the upgrading of Laos' industrial structure while promoting economic growth. Based on the data on China's FDI flow to Laos from 2003 to 2023, the proportion of Laos' tertiary industry structure and GDP data, this paper uses the ordinary least squares (OLS) regression model to construct a quantitative analysis framework. First, through theoretical analysis, the main paths through which FDI affects the economic structure of Laos are sorted out, including capital investment, technology spillovers and market competition effects. Secondly, based on the OLS model, the econometric equations that affects the proportion of three industries: primary, secondary, and tertiary education are constructed, respectively, and SPSS is used for empirical analysis to quantify the specific impact of Chinese FDI on the industrial structure of Laos. The OLS regression results show that Chinese FDI has a significant negative impact on the proportion of the primary industry in Laos (LNPID1) (regression coefficient -0.096, p<0.01), that is, the inflow of foreign capital reduces the proportion of agriculture in the economy. It has a significant positive impact on the proportion of the secondary industry (LNSID) (regression coefficient 0.074, p<0.01), indicating that FDI has promoted the industrialization process in Laos. The impact on the proportion of the tertiary industry (LNTID3) is not significant (p≈0.053), indicating that the driving effect of foreign investment in the service industry is weak. In addition, FDI is mainly concentrated in Vientiane and the economically developed areas along the Mekong River, while the driving effect on remote areas is limited, resulting in an uneven regional investment distribution.

KEYWORDS

Foreign Direct Investment (FDI); Laos; Industrial Structure; OLS Regression; China's Outbound Investment

CITE THIS PAPER

Ran Liu, Baoquan Li, Analysis on the Impact and Effect of China's Foreign Direct Investment on Laos' Industrial Structure. Financial Engineering and Risk Management (2025) Vol. 8: 133-142. DOI: http://dx.doi.org/10.23977/ferm.2025.080118.

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