Can ODA Enhance Economic Development? Special Research on Australian Fund for the Growth Effectiveness in Laos

Abstract

In Laos, ODA from Australia pays over USD 40 million each year in the field of educational improvement. Australia has been assisting and promoting the economy of Laos for several decades, which establishes a good scenario of the two countries’ ties (between Australia and Laos). Firstly, the author examines the relationship between the human development index and economic growth by using a bivariate correlation testing approach of two variables as provided by Pearson and Spearman, and the use of the cointegration method by Johansen test on VECM analysis, this estimation is vital for time series data. In the final finding, there was a result to denote that, education can have a significant relation to enhance economic growth in Lao PDR. Higher education reflects higher economic development by relying on the test result of Pearson with a p-value of .02 and the Spearman test with a p-value of .049, of which the p-value was less than .05. For VECM analysis, the result showed that education in both the long and short run has a negative direction in relation to economic development, in the short run the ODA from Australia showed an opposing direction to growth, but in the long run, such ODA has a positive relation to economic growth with significance. Finally, this paper detailed Laos’ future policy on promoting investment in the field of technological development and innovation; a suitable law and regulation for technological investment should be effectively enacted for ODA in the field of educational improvement, eventually good educational people can build investment and national economic development of Laos.