Globalisation, free trade and protection — practice question

Read the source material carefully before answering Question 1. Source Material: Laos, a land-locked country Laos is a land-locked state, bordered by Vietnam, Cambodia, Thailand, Myanmar and China. Having access to seaports allows an economy to make the most of international trade. Since the government began free market reforms, Laos’s economy has expanded quickly, with an average annual growth rate of about 7% over the past 10 years. These free market reforms have helped Laos market its plentiful raw materials overseas and have also drawn in foreign investment. Laos has sizeable copper deposits, which are highly sought after by global manufacturing industries. A new rail connection between China and Laos is expected to make these transactions simpler. The government of Laos has also placed strong emphasis on education. Over the last 20 years, the adult literacy rate for both males and females has risen from 60% to 85%. The financial sector, including commercial banks, is expanding. This has allowed local entrepreneurs to borrow funds and has also encouraged more households to save. Even so, investors remain unsure about putting money into Laos. Foreign investors face tight rules and regulations, particularly in industries such as mining. The government states that these regulations are necessary to prevent market failures, including external costs, and the misuse of monopoly power. However, these rules and regulations are sometimes not clear. Laos is among the lowest ranked countries in the World Bank’s Ease of Doing Business index, which measures how simple it is to start and operate a business in a country. Fig. 1.1 presents the Ease of Doing Business ranking (1 = easy) and GDP per head of selected countries in 2018. A recent slowdown in China’s economy may have damaging consequences for Laos. China is Laos’s biggest trading partner and also the largest source of foreign investment into Laos.