Abstract
This paper examines the exchange rate volatility and bilateral industry level trade flows between Lao and her major trade partners. As with other South-East Asian countries, Laos has a trade-dependent economic structure. Examining the impacts of exchange rate volatility on export flows, therefore, is indispensable for policy making. However, there are few studies that analyze this issue of Laos. On the other hand, many previous studies that examined the relationship between exchange rate volatility and trade volume are inconclusive. The reasons of these indefinable conclusions partly come from the understating of importance of imports and the high industry-aggregation. Our study therefore examines export and import demand models with disaggregate sectoral data in order to mitigate these problems. ARDL bound testing cointegration approach are applied.We found that there are long run relationship between exchange-rate volatility, trading partner’s GDP, Lao GDP, and total export including agriculture sector, manufacture sector and mineral sector. The exchange-rate volatility has a negative and significant impact on total export and agriculture export in the case of Laos. However, it has a negative impact on manufacture sector and mineral sector, but it is not significant.