Since the establishment of Lao People's Democratic Republic (Lao PDR) in 1975, the Lao economy has been through a series of transformations. With the introduction of the New Economic Mechanism in 1986, Lao PDR has gradually increased its integration with the subregional, regional and global economy. Some of the milestones include membership of the Greater Mekong Subregion cooperation (GMS) in 1992, the Association of Southeast Asian Nations (ASEAN) in 1997 and now WTO in 2013. The country has also been an active member of many regional and subregional cooperation initiatives, creating the opportunity for both investment and foreign trade. The economy has grown at a remarkable rate of 6.7 per cent a year over the past two decades. Despite the global financial crisis, the Lao economy managed to grow by 7.6 per cent in 2009 and 7.8 per cent in 2010. The GDP per capita rose from US$329 in 2001 to US$1,069 in 2010. In the social field, progress has also been observed. The literacy rate for both males and females, the primary completion rate as well as the total enrolment rate show a gradual improvement in education. Health indicators, such as infant mortality rate and life expectancy, show some improvements. There has been a significant progress in poverty eradication. The poverty headcount ratio at national poverty line fell from 46 per cent in 1992/93 to 27.6 per cent in 2007/08 and is estimated at 20.4 per cent for 2010.

This chapter aims to review the integration of Lao PDR into the regional and subregional economy. It will first summarize the evolution of Lao economic integration. The chapter will then outline how and why Laos needs to integrate with the region. In the last part, it will discuss the need for a better integration at different levels, including a discussion of the opportunities and challenges arising from the integration. In the conclusion the concept of connectivity is introduced.