The role of Sustainability in Development Analysis: a case study of Laos

The main purpose of this thesis is to identify the role of sustainable development in Laos, based on the integration of three factors, economic growth, social development, and the environmental dimension. Annual time series data are used for the period 1980-2010. In order to generate the most appropriate regression, relevant theoretical and empirical studies are reviewed. This thesis contributes to the on-going research issue about key determinants influencing sustainable development in developing countries. Firstly, this study uses the first different of logarithm form to identify the determinants of economic growth, the impacts of growth on poverty and environmental conditions in Laos. However, using the multiple regressions, serious problems of multicollinearity were encountered and those results became less reliable. Principal components analysis (PCA) is a technique to handle the problem of multicollinearity and produce stable and meaningful estimates for regression coefficients. This thesis concludes that there are several variables, both internal and external factors, which have influenced the current economic growth of Laos. Particularly the internal factors (domestic investment, government expenditure, and industry) show their strong correlation with economic growth, while the external factor (participation in ASEAN) also plays an important role in economic growth. On the other hand, the other external factors (FDI, AID and OPEN) show a weaker link to domestic growth of Laos. In the long run, to ensure the effectiveness of external factors on domestic growth, this research suggests exploiting more effectively the opportunities provided by foreign direct investment, through the openness of the system to globalization and international trade, together with better management of aid allocation. The impacts of economic growth on poverty and environmental conditions are then considered, questioning whether economic growth leads to the reduction of poverty and whether it produces a pressure on environmental conditions. This study found that those determinants not only have been dominant in economic growth, but they do indeed correlate with a reduction in the level of poverty. On the other hand, the increase in economic activities leads to increased environmental damage. This research supports continuing the adjustment of domestic activity investment, government expenditure, improving trade openness system, foreign direct investment, aid allocation, ASEAN, and so on. These factors can help the country to grow and poverty to diminish but we have also to pay attention to their impacts on the environment. Sustainable development would achieve its goal only if these internal and external factors contribute to economic growth, where this growth is distributed across the entire population, together with environmental protection conditions. In order to attain the goal of sustainable development, strong environmental and natural resource protection policies are suggested. To maintain a high rate of economic growth, this study suggests considering the natural resources and the areas with the greatest potential to be utilized for growth; such as tourism sustainability, human resource improvement and trade policy improvement. To improve social development, reduce the development gap and eradicate extreme poverty, it is suggested that community participation development, gender promotion, and investment in social services be increased especially in rural areas.