Globalization, foreign direct investment, and urban growth management: Policies and conflicts in Vientiane, Laos

Land Use Policy 42 (2015) 790–799

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Land Use Policy journal homepage: www.elsevier.com/locate/landusepol

Globalization, foreign direct investment, and urban growth management: Policies and conflicts in Vientiane, Laos Thanousorn Vongpraseuth a,1 , Chang Gyu Choi b,∗ a b

Department of Urban Planning, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul 133-791, Republic of Korea Graduate School of Urban Studies, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul 133-791, Republic of Korea

a r t i c l e

i n f o

Article history: Received 18 November 2013 Received in revised form 30 September 2014 Accepted 7 October 2014 Keywords: Globalization Foreign direct investment Urban growth management Growth management policies Vientiane Laos

a b s t r a c t This research focuses on the conflicts between urban growth management (UGM) in urban planning policy and the growing influence of globalization and foreign direct investments (FDI) in Vientiane, the capital of Laos. In order to answer the question, “Does FDI affect UGM in the capital city of Laos, Vientiane?” the article explores significant decrees, mandates, technical reports, field surveys, and interviews. The results revealed that FDI has been an important instrument in Vientiane for boosting the economy and supporting urban growth. On the other hand, core conflicts emerged between government growthmanagement policies and the spatial impact of FDI regarding transformations of land use, the physical environment, sociocultural values, and collaboration stages. Moreover, globalization and FDI not only influence economic growth, but also affect the implementation of UGM in Vientiane. Although the urban planning sector has been rather strict, the investment sector prefers to encourage both FDI and domestic investments by giving incentives. Therefore, to achieve more balanced development for this “least developed country,” collaboration between similar relevant institutions (e.g., planning, investment, and land management) should be considered necessary long-term strategies. © 2014 Elsevier Ltd. All rights reserved.

Introduction Globalization is the process of increasing interactions and interdependencies between economies, societies, and nations across large distances. Globalization has led not only to the expansion of the boundaries of markets and communications but also the spread of cultural awareness among consumers all over the world. In the first stage of globalization, social, economic, and political activities are distributed across boundaries, such as events, decisions, and activities. These movements have consequences for individuals and communities in distant regions of the globe (McGrew and Held, 2007). The negative effects of globalization can be explained through the historical and sociocultural changes from the movement of people from developing areas to underdeveloped regions (Mazrui, 2001). In addition, in the built environment of a city, the strong processes of globalization and localization clash (Mahgoub, 2004).

∗ Corresponding author. Tel.: +82 2 2220 4519. E-mail addresses: [email protected] (T. Vongpraseuth), [email protected] (C.G. Choi). 1 Tel.: +82 2 2220 0277. http://dx.doi.org/10.1016/j.landusepol.2014.10.003 0264-8377/© 2014 Elsevier Ltd. All rights reserved.

In general, one of the greatest impacts of globalization is foreign direct investment (FDI). The flow of globalization, particularly FDI concentrated in the core of an urban area, is a crucial instrument for building economic capacity. Additionally, population migration also results in a faster path toward urbanization. Indeed, the power of FDI can also be seen in the growth of regions and spatial transformation (Yee Ng and Tuan, 2006). However, such regional and economic growth affects the natural environment and causes pollution; their environmental effects have been continuously debated (Grossman and Krueger, 1995; Copeland and Taylor, 2004). Due to the associated environmental problems, it is common for governments to implement environmental protection strategies in cities through the processes of urban growth management (UGM). Alternatively, improper planning, poor implementation, and ineffective UGM tactics have resulted in environmental problems, traffic congestion, and other urban problems (Einsweiler and Deborah, 1992). In recent decades, many scholars have examined the relationships between UGM policy and FDI. Logan and Molotch (1987) and Feagin and Parker (1990) proposed that the combined powers of government authority and business sector development represent the crucial components of city space formation and transformation. In short, FDI combined with the power of globalization function as core drivers of economic growth and development (Feagin and Smith, 1987). Regarding Laos, the government has promoted FDI

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since the open-door policy began in 1986. Consequent positive effects can be seen in GDP growth. In case of Vientiane, the side effects of globalization and FDI can be seen in the environmental, political, and social transformation processes. In 2010, an Official Development Assistance (ODA) study team from the Japan International Cooperation Agency (JICA) conducted a study and provided a master plan for the urban development of Vientiane. Through empirical study, JICA (2011, p. 2) defined the conditions of Vientiane as follows. The physical environment of Vientiane capital city has been ruined by the fragmentation development processes. In light of this situation, it is recommended that the local government of Vientiane as well as its citizens carefully examine the problems they encounter, and consider the best way to develop Vientiane until the year 2030. In order to sustain this master plan, it is necessary to consider both urban planning (Ministry of Public Works and Transport or MPWT) and managing sectors (Vientiane Urban Development and Administration Authority or VUDAA) as integral compenents of strong UGM strategies. UGM policy in Vientiane is designed to achieve urban growth while balancing economic development and ecological preservation. As such, there are many factors that affect balanced growth in distinctive communist countries like Laos. For example, because of insufficient funds for development, the Lao Ministry of Planning and Investment (MPI) has driven an investment promotion policy to encourage FDI (MPI, 2010). However, urban spatial management is needed to achieve sustainable goals. The conflicts between FDI and UGM occur in Vientiane daily, but it is hard to find any solution and article regarding the relationship between the spatial impact resulting from FDI and UGM policies in Laos. Therefore, the conflicts between FDI and UGM are considered the main research question of this paper. In short, the central question is, “Does FDI affect UGM in the capital city of Laos, Vientiane?” This paper focuses on the steps that comprise urban development and implementation in Vientiane. The research methodology is based on theories from the literature and is supported by interviews done in June 2012, while secondary data were collected from the Lao MPWT and recent project websites. Moreover, we interviewed ten top officials from the Department of Public Works and Transport (DPWT) in Vientiane and five senior lecturers from the Department of Urban Environment (DUE) of the National University of Laos (NUOL), who specialize in housing, urban development, and urban land use regulation implementation in Vientiane. This paper is divided into five sections. After the Introduction, the section “Globalization, Foreign Direct Investment, and Urban Growth Management” defines the problems of globalization, FDI, and UGM in general. The third section “Foreign Direct Investment and Urban Growth Management in Laos and Vientiane” discusses the flow of FDI into Laos and Vientiane. The section “Conflicts between FDI and UGM in Vientiane” discusses the conflicts between the power of FDI and the implementation processes of UGM in Vientiane. Finally, the Conclusion presents a summary and gives recommendations for future development.

Globalization, foreign direct investment, and urban growth management The effects of globalization and FDI are both positive and negative. Dreher (2006) and Dreher et al. (2008) stated that globalization affected negatively the growth policies, taxation management, and political environment of many countries. In addition, Beck (2000); Christmann and Taylor (2001) affirmed that countries faced various challenges regarding economic and environmental risks. Current environmental issues such as climate change and peak oil prices

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will thus result in peak globalization (Curtris, 2009). In contrast, economic globalization has a strong positive effect on the living conditions of people, especially life expectancy and increased population growth rates. A high return on investment rate is also associated with a high level of productivity, which is displayed by the increase in globalization value (Bergh and Nilsson, 2010; Ming, 2007). Furthermore, international competition increases the need for developed technologies and investments (Looney and Frederiksen, 2004). Also, the flow of investment promoted by an economic growth policy is altered due to the dynamic power of FDI and other investment patterns with high incentives (Tuan and Yee Ng, 2004; Sonn and Lee, 2012). FDIs contribute to the process of agglomeration in market economies and can influence development policies. Therefore, the influx of FDI into a nation can increase GDP (Lipsey, 1999). On the other hand, job concentration and transition also affect the legislation of permanent and temporary employment (Gross and Ryan, 2008). The impacts of FDI can be interpreted variously based on the types and purposes of FDI. For example, one of the most significant entry modes that impact the pattern of increasing capital and the productivities of the host regions and nations is the Greenfield investment type, whereas the merger and acquisition mode is expected to transfer income from the host countries to foreign countries (Kim, 2008). Significant evolution and development of economies are driven by FDI as an open-country policy, which brings new technologies, capital, and new economic structures to the regions (De Mello, 1997; Du et al., 2012). Therefore, attracting FDI is a top priority for many countries around the world. For example, with the flow of FDI from the processes of spatial agglomeration, regional GDP can grow (Tuan and Yee Ng, 2007). Obviously, many countries intend to increase their GDP. One method to increase GDP is for countries to favor foreign over domestic investments and provide more freedom and incentives to foreign investors, with various tax reductions, market priorities, public services, and other significant rights (Erdogan and Atakli, 2012). Kang and Lee (2007) found that the quality of labor and transportation infrastructure positively influenced the location decisions for South Korean FDI in Chinese economic zones, whereas labor cost and travel distance showed negative impacts. FDI plays an important role mostly in urban regions and influences UGM directions. UGM is a significant tool in land use planning and economic development (Gihring, 1999). UGM involves a set of instruments applied by the government to control and manage the growth of cities. Population growth, either logistically or exponentially, represents a challenge for UGM and urban containment policy (Woo and Guldmann, 2014). Furthermore, land zoning regulations produced flexible conditions for increasing public facilities development funding. In contrast, agricultural land had been negatively impacted (Chaudhuri and Banerjee, 2010). In the development stage it is necessary to consider urban spatial authority organizations and development agencies. Private developers may also provide the needed infrastructure development in accordance with government regulations (Hannah et al., 1993). Regarding the public sector, the main public policy instruments for managing urban growth and for protecting open spaces at various governmental levels are considered a top priority, including the public use of land as well as regulatory and incentive-based approaches (Bengston et al., 2004). There have been many debates recently on the effects of globalization and FDI on UGM policy. UGM policy has met some obstacles as FDI has emerged globally. The investments in developing countries have increased environmental problems and reduced the function of institutional development in city areas, especially in Chinese urban areas (Wang and Chen, 2014). In Wuhan, an inland city or intra-metropolitan area in China, it was found that the interaction among accessibility, urban spatial structure, and

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institution significantly impacted FDI location (Huang and Wei, 2014). Further, the impacts of economic globalization and FDI flows increase regional inequality in low- and middle-income countries (Lessmann, 2013; Ezcurra, 2013). Moreover, the patterns of urban growth from population concentration were found to be transformed by the orientation of the state growth management policies (Boarnet et al., 2011). Growth management is defined as growth control, which is opposed to growth. Cho (2002) argued that growth in general does not pose a huge problem, but the exact pattern of growth is crucial. To manage growth, urban planning and management are adopted commonly as the most important instruments in contemporary cities. While there are several challenges regarding both the growth and amount of capital inflows of FDI as well as the development stage of urban planning, these factors imply that FDI capital inflows influence the implementation of local- and nationallevel urban development plans.

Foreign direct investment and urban growth management in Laos and Vientiane Foreign direct investment and urban growth management in Laos Laos is a landlocked country in Southeast Asia that shares its borders with five countries: Thailand, Vietnam, Myanmar, Cambodia, and the People’s Republic of China. Its total area is 236,800 km2 , 230,800 km2 of which consists of flat and mountainous areas and 6000 km2 is water. Laos is often described as a small country with a population of only 3.5 million before 1986 and 6.4 million in 2010, with population densities of only 15 and 27 people/km2 , respectively (MPI, 2010). Significantly, Laos is one of the least developed countries (LDC) in the world based on its limited human resources, low per-capita income, and economic vulnerability. Its economic and political modes are based strictly on a centralized, single-party system. Since 1986, the Lao government has been shifting its focus from a command to a market economy, according to its national development goals. This movement was a fundamental signal for the opening of the country’s doors to international aid and FDI. The United Nations Development Program (UNDP) is one of the international organizations that provided assistance to Laos (UN, 2001). The UNDP focused on two main critical transitions: (1) to a market economy that gives people the power of choice; and (2) to a middle-income country by 2020, by working toward poverty eradication, promoting effective governance, and supporting improved environmental management. To encourage FDI the Lao government enacted investment promotion zones in the investment law promulgated in 1988. In this policy investment incentives were given top priority to the education and health care sectors. In addition, foreigners were given access to local financial sources and foreigninvested companies were allowed to own a plot of land where they could build their residences (MPI, 2009). Urban governance has undergone a major transition in the last few years. Among the many development policies of the Lao government, one of the most important is the decentralization of urban development responsibilities from the ministerial departments at the provincial and prefectural levels to an urban authority at the local level. In recent years, the MPWT, through its provincial and prefectural departments, took charge of urban planning and management, in addition to rural development. Financing public sector investment in urban areas was achieved through annual budget allocations from the national to the provincial government, but no specific budget heading was created for urban infrastructure maintenance (ADB, 2010). In 1995 the Lao government initiated a decentralization scheme, including a step toward a decentralized form of urban administration (MPWT, 1999). The structure of authority for urban

Fig. 1. Administrative structure for urban planning in Laos.

development and management was formed from top-down power to local-level enhancement in terms of the implementation processes. The top level was the national-level plan controlled by MPW (MPWT 2006), which created comprehensive and master plans. The lower level function consisted of management and implementation (Fig. 1). Many sub-organizations were set up by the ministry to work in specific sectors and areas. The government sector believed that the needs of the local regions should be identified by the local authorities. Therefore, the top level firmly supports the needs of the lower level for the stability and sustainability of future development. By late 1995 the Lao government established the Vientiane Urban Development Management Committee (VUDMC) and directed it to manage and complete the implementation of infrastructure development and maintenance in the urban areas of Vientiane. The emergence of VUDMC was the first step in the development of UGM in Laos, which functioned alongside the DPWT (United Nation, 2001). Strong waves of international events have driven the Lao government to constantly try to catch up with other countries’ developments. For example, four major events have brought many new changes in the Vientiane city center area in the so-called “golden era of economic and social movements of Laos.” These are: the 10th ASEAN Summit in 2004; the Southeast Asian Games (SEA Games) in 2009; the great celebrations of the 450th anniversary of Vientiane in 2010; and the ASEM summit in 2012. In addition, Laos is preparing to host the 2015 ASEAN Economic Community or AEC summit. These major events are believed to have helped boost the economy of Vientiane in terms of job creation in both the construction and service sectors. The GDP per capita of Laos rose from $135 in 1986 to $1320 in 2011 (National Statistic Center, 2012). Such a massive increase in income reflects the rapid growth of the Vientiane economy at a rate of 12.2% a year, which was fueled by the service (24%) and industrial (13%) sectors (DoS, 2010). The growing demand for business activities has led to a rapid increase in salaries paid to workers. Thus, Vientiane has become the biggest workplace among the 17 provinces of Laos. However, such conditions reinforce the major challenges that Vientiane faces as it seeks to manage its growth effectively. Foreign direct investment and urban growth management in Vientiane Vientiane’s population density is higher than the average population density of Laos. This significant population density gap between Vientiane and the rest of Laos has several implications on urban concentration, such as the role of population densities, employment, and income generation in high-FDI-preferred areas. The annual income of the capital dwellers increased gradually, reaching $2213 per capita in 2012. The Lao government has attempted to attract FDI since mid-1988. The Investment Promotion Law was enacted in 1988 and revised in 1994, 2004, and

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2009 (MPI, 2010). According to the government policy addressed in the Seventh Five-Year National Socioeconomic Development Plan 2011–2015 (7th NSEDP), economic growth should be balanced with environmental protection (MPI, 2005). Because of Laos’s LDC status, the Lao government has been promoting and encouraging both domestic private investments and FDI, as stated in the country’s national development strategies. In a significant message from the MPI regarding 45 development projects for Laos (DPI, 2010, p. 1), the following was stated: To encourage and attract more FDI into Lao PDR, it is very important that an investment promotion mechanism be developed in the most strategic way to ensure minimal loss of the country’s uniqueness and resources. One of the instruments used to promote more FDI into the country is the provision of information through websites, advertisements, leaflets, newsletters, and project calls for proposals. Recently, the Department of Planning and Investment (DPI) developed the Investment Calling List (ICL) as one of the channels for the provision of information on investment profiles. ICL was addressed in celebration of the 450th anniversary of Vientiane in 2010, with the aim of providing opportunities to domestic and foreign investors. The geography and natural potentials, special economic zones (SEZ), tourism development sectors, manufacturing, infrastructure and construction, industrial and logistics parks, and hydropower projects (DPI, 2010) were listed in the ICL guide for 45 development projects around the country. In this list, the government put more emphasis on mega-projects to boost investments in the country as well as the economy. On the international linkage policies of the Lao government, economic development and graduation from LDC status have been made top priorities. Given the mountainous landlocked geography of Laos, transportation remains one of the challenges for foreign trade. The government has come up with a way to overcome such a challenge: by transforming such weakness into an opportunity through the creation of the “landlocked to land-linked” strategy to accommodate trade within the region. By 1997 the government issued Decree No. 177/PM (MPWT, 1997), creating an Urban Development and Administration Authority (UDAA) in each large province, such as Luang-Prabang, Khammouan, Savannakhet, and Chanpasak. Additionally, Decree No. 14/PM issued in February 1999 (MPWT, 1999) stated that the VUDAA would replace VUDMC. VUDAA is an administrative organization within the administrative structure of

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Vientiane. This authority is in charge of managing urban development activities in the main urban districts under the jurisdiction of Vientiane. MPWT is the main institution dealing with nationallevel plans and distributing subscale plans to the local level (Fig. 1). In short, UGM in Vientiane consists of planning by MPWT and managing by VUDAA. MPWT works on both policy making and urban planning. By 1999 the first urban planning law was addressed and implemented by VUDAA and lower authorities. The planning process needs high-level support, active leadership from governmental agencies responsible for the implementation of the plans, and strong encouragement from local-community involvement. In order to succeed, the Lao government is involved with UGM, such as using urban planning regulations for controlling growth, supporting the sub-authority sector for urban maintenance programs, and giving power to local authorities to reinforce the capacity for implementation and urban management. Moreover, the Lao government has been driving the policy of Sam Sang (in Lao), or three developments. The Sam Sang policy defines the directions for power decentralization, namely building: (1) provinces as strategic units; (2) districts as sectorial strengthened units; and (3) villages as development units. In 2012, 51 villages were selected to be representative pilot projects for implementation. According to MPWT agreement No. 17512/MPWT (MPWT, 2010), three main central districts of Vientiane were selected as a model region for Sam Sang policy implementation. Many transportation routes were built and some are still under construction. These projects are the main route for the shipment of goods and opening of the labor market. In order to boost and sustain high growth, the Lao government has been giving incentives to the investment sectors, especially the FDI and joint venture sectors. For example, investors will receive longer concession periods, reasonable tax rates, and flexible laws (CPI, 2005; MPI, 2010). According to documents and data analyses, the power of FDI accounted for major investment amounts (Table 1) compared to domestic investment capital (Table 2). Local development projects such as architectural office buildings, banks, hotels, shopping centers, and other service buildings were found to have quite small investment contributions. Furthermore, several large-scale development projects were found in the core urban areas, with the longest land concession periods. Through these flows, high population growth, employment, and population density in the core area of Vientiane have been increasing. Additionally, the cooperation donation from the ODA is a significant

Table 1 FDI on large-scale development projects in Vientiane. Project name

Developer

FDI

Year

Land size (m2 )

1. Vientiane Nong Tha Paradise Land 2. Vientiane That Luang Specific Economic Zone

Private 100%

Vietnamese

2012

150,000

Private 100%

Chinese

2011

3,650,000

3. World Trade Center Vientiane

Private 100%

Chinese

2011

110,000

4. Vientiane New World 5. Long Thanh Vientiane Golf Course (Specific Economic Zone) 6. Vita Park Specific Economic Zone 7. Saysettha Development Specific Economic Zone 8. Dongphosy Specific Economic Zone 9. Donchan Palace Hotel

Private 100% Private 100%

Chinese Vietnamese

2012 2008

420,000 5,577,500

Govt. and Private

Chinese

2009

1,100,000

Govt. and Private

Chinese

2010

10,000,000

Govt. and Private

Malaysian

2012

539,400

Private 100%

Singapore

2004

10,000

Purpose

Land tenure

Residential and mixed facilities Embassy offices, hotels, finance and business areas, residential, hospital, school Hotel, apartment, office, entertainment, and commercial buildings Entertainment facilities Tourism, trade, and service

50 years 99 years

50 years

50 years 50 years

Residents and service

75 years

Industrial zone

50 years

Trade and service

50 years

Hotel

>50 years

Data collected from the Ministry of Public Works and Transport and the Ministry of Planning and Investment (the author, 2012).

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Table 2 Major local development projects funded by domestic investment capital in Vientiane from 2000 to 2012. Project name

Investor

Developer

Year

Approximate land size (m2 )

Purpose

1. Lao Telecom

Lao and Singapore

Local construction company

2011

1800

2. Lao Security Exchange

Private

2010

1350

3. Laos-Singapore Shopping Mall 4. Lao International Convention Center (LICC)

Private

2009

1500

Government

Local construction company Local construction company Chinese company

2012

1200

5. Mekong City

Government

Chinese company

2012

4000

6. Lao International Trade Exhibition and Convention Center

Private

Local construction company (Lao World Group)

2004

1800

Office and service building Bank and stock market Shopping facility ASEM Conference Hall Residences for the ASEM delegates Shopping and exhibition facility

Data collected from the individual websites of the projects (by the author, 2013).

target that the Lao government appreciates. For instance, in 2010 JICA provided a great deal of support to the Vientiane Capital Urban Master Plan (VCUMP) around 2030 (Fig. 2). This master plan will be used as the main vision in planning and UGM by the Lao government. The plan’s visions focused on three elements: regional hub in the Greater Mekong Subregion (GMS), location in the center of Laos, and comfortable and livable hometown (JICA, 2011). The implementation is the responsibility of DPWT under the direction of MPWT. On the investment side, the development of the investment planning sector is very profitable, whereas the driving instruments of UGM gave birth to negative conditions such as worse urban environment, land use changes, and sprawl development. Significantly, the primary conflicts between FDI and UGM in Vientiane resulted from four aspects of FDI, specifically a project’s: (1) ownership (either sole or joint venture); (2) size; (3) purpose; and (4) location. FDI ownership patterns typically take one of two forms: sole ownership in which one country exerts sole control of a business while operating in a host country; or joint venture in which a foreign company cooperates more closely with a business or government of the host country. Recently, the major development projects in Laos are focused on infrastructure linkage

for commuting between regions on a local scale and mobilization of urban expansion by the main developed routes. Road and bridge construction projects are necessary to provide integrated urban development in Laos (ADB, 2012). However, Laos’s LDC status means that the lack of a skilled labor force and technologies presents fundamental development challenges. Thus, either sole or joint venture FDI represent key approaches to supplement the lack of skilled labor force and inadequate technology, thereby boosting the economy by encouraging job growth and increasing activity in the industrial, commercial, and service sectors. These patterns are supported by investment promotion sectors rather than by urban development side from the urban planning and management sectors under the direction of top-stage decision-making. Large-scale development projects were approved for construction in Vientiane when the projects were underscored as profitable for the public interest, even if their conditions appeared tightly regulated. In contrast, urban planning regulations and land laws need to be flexible to encourage investments. For example, the Dongphosy SEZ (No. 8 in Fig. 3) was located at the site of the outer-ring greenbelt line (planned by the JICA study team, 2010) and national forest preservation site (designated by land laws). In 2012, this area was transformed into a golf course under the

Fig. 2. Master plan of central Vientiane Capital around the year 2030. Source: JICA study team (2010, p. 34)

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Fig. 3. Locations of FDI and domestic development projects in Vientiane. (For interpretation of the references to color in figure legend, the reader is referred to the web version of the article.) Source: Drawn by the author (2013).

name of Longthanh-Vientiane SEZ and Dongphosy SEZ, covering 5,577,500 and 539,400 m2 respectively (compare the master plan in Fig. 2 with green No. 5 and 8 in Fig. 3), with 50-year concession periods (Table 1). According to the numbers in Table 1, one could understand that large size projects were made possible by FDI, whereas UGM failed through those development directions. One example of investment activities can be seen in one case in the central area of Vientiane, which was previously planned as a green space and theme park for leisure activities for the city’s inhabitants. Instead, a shopping complex and mixed residential buildings were planned, called “World Trade Center Vientiane” (green dot No. 3 in Fig. 3). This reversal demonstrates that commercial development is the driving force in Vientiane; moreover, it signals the industrial step in the evolution of Laos. The FDI location and zoning preferences were also revealed to be opposed. Some of the most preferable locations for FDI activities include SEZs. Such places are near the Laos-Thailand Friendship Bridge and on the site of the first railroad from Laos to Thailand, with a 3 kilometer length (green dot No.8 in Fig. 3), which were selected because of their beneficial international

linkage. In contrast, UGM direction failed at the implementation stage. With regard to the national development strategy, some parts of UGM policies failed due to lack of funding and investment, such as the That Luang marsh development project (green dot No.2 in Fig. 3), which was basically mandated as an environmental conservation site for ecological sustainability. The wetlands and marsh areas around the city are considered significant physical features and provide hydrological functions, namely flood control, maintain river flow during the dry season, and purge the wastewater generated by the population of the urban area (Gerrard, 2004). In this decade, services, residential, and entertainment facilities have been developing in the Vientiane That-Luang SEZ, which covers a 3,650,000 m2 area in the central part of the That-Luang marsh area, with a 99-year concession period (Table 1). Due to the power and influence of FDI, Lao UGM procedures for a long-term master plan for Vientiane will be tough to implement. Table 3 shows dynamic population growth and distribution within nine districts of Vientiane. The figures show a low percentage of growth but high density in two core districts: Sisattanak (Code 1-04) and Chanthabuly (Code 1-01), with a near twofold

Table 3 Population distribution of Vientiane by district from 1995 to 2010. Code

1-01 1-02 1-03 1-04 1-05 1-06 1-07 1-08 1-09

District

Chanthabuly Sikhottabong Xaysetha Sisattanak Naxaithong Xaythany Hadxayfong Sangthong Mayparkngum

Density (Person/km2 )

Population (Persons)

1995

2005

2010

2029 530 512 1877 39 107 252 27 53

2374 714 663 2216 52 165 304 39 70

2706 813 766 2533 59 200 346 45 79

58,855 74,251 75,255 58,178 44,104 97,829 64,962 16,728 33,945

68,858 99,908 97,514 68,686 58,368 150,793 78,338 24,215 45,041

134

176

204

524,107

691,721

Total Source: Asian Development Bank (2012).

1995

2005

Growth (%) 2010

1995–2005

2005–2010

78,482 113,803 112,530 78,521 66,482 182,812 89,248 27,768 51,354

1.7 3.5 3.0 1.8 3.2 5.4 2.1 4.5 3.3

2.8 2.8 3.0 2.8 2.8 4.2 2.8 3.0 2.8

801,000

3.18

3.16

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Table 4 Share of local and foreign investment in Laos, January 2000 to December 2011. No.

Investment category

Number of projects (%)

Local share (Million USD)

Foreign share (Million USD)

Amount (Million USD)

$2 (0.17) – $1176 (99.83)

– $7855 (55.96) $6183 (44.04)

$1569 (8.53) $7855 (42.69) $8978 (48.79)

$1178 (100%)

$14,038 (100%)

$18,402 (100%)

Private

Government

1368 (36.77) 1583 (42.55) 769 (20.67)

$1567 (49.18) – $1619 (50.82)

Total projects or investments in USD 3720 (100%)

$3186 (100%)

1 2 3

Domestic business Sole FDI Joint venture

Source: Ministry of Planning and Investment (2011).

annual growth rate between 1995 to 2005 and 2005 to 2010, as both of them started as a central cultural and business area. On the other hand, there is a high percentage of growth in the outer areas of the city, such as the Xaythany (Code 1-06), Xaysetha (Code 1-03), and Sangthong (Code 1-08) districts, with growth slowed from 1995, when land prices were affordable, to 2010, when land prices gradually increased. These changes may illustrate some conditions of site control by natural force, regulation enforcement, and economic imbalance. To better understand economic development in Vientiane, investments were classified into three types: (1) domestic business; (2) sole FDI; and (3) joint venture. Among the three, domestic investments accounted for 1368 projects (36.77%), FDI accounted for 1583 projects (42.55%), and joint venture accounted for 769 projects (20.67%). In contrast, the highest percentage of investment amount came through joint venture, which accounted for 48.79% of total investments (in USD), followed by sole FDI of 42.69% (Table 4). In 2012, the World Bank reported that per capita GDP growth in Laos increased from 6.4% in 2004 to 8.2% in 2012 (Worldbank.org, 2014). This implication shows the positive impacts of both domestic investment and FDI on economic development in Laos.

Conflicts between FDI and UGM in Vientiane The most substantial challenges of UGM today as well as in the next decades involve how to create urban spaces for structuring urban growth while combating the development of urban sprawl and controlling inefficient land use. Without effective UGM policies to manage and control urban growth, urban sprawl will lead to worsening environmental effects and higher costs of infrastructure development and transportation linkages. According to the data and image analysis from both primary and secondary sources in Vientiane, there are two fundamental but contrary implications for urban population: (1) people prefer to work in the business district where there is a greater concentration of jobs (workplace concentration); and (2) people prefer to reside in houses outside the city center area (cheaper land prices and freedom of creation). The growth and dispersion direction of the Vientiane population can be classified into two patterns: (1) concentration within one core; and (2) independent scatter patterns around the urban fringe with the three crucial transport links: national boulevards of the Southern Route, Northern Route, and Western Route (see Fig. 4). The transformation of urbanization and suburbanization reflects rapid growth and development. Essentially, government policy focusing on prioritizing road construction and investments boosts economic growth, especially by giving incentives to FDI. Giving the right and promoting investment are affecting the local plans and implementation processes of UGM. Several conflicts emerged between FDI and UGM policy. The hidden dimensions of the conflicts between FDI and UGM in Vientiane are hard to define. Therefore, only some pieces of outstanding evidence are presented and addressed in this paper.

To obtain such evidence, we interviewed ten top officials from the DPWT in Vientiane and five senior lecturers from the DUE of NUOL who have been working on housing, urban development, and urban land use regulation implementation in Vientiane. Questions pertained to the effects and conflicts of both FDI and domestic private developers with regard to UGM direction outputs. The following four key issues were summarized: (1) land use control; (2) physical environment; (3) sociocultural values; and (4) administrative structure and cooperation. One question was, “Has the comprehensive land use plan been implemented smoothly?” Significant answers fell into two categories: (1) regulations; and (2) land prices. The existing land use plan was not implemented smoothly due to the power of FDI with high incentives from the national investment policy. Also, land law faced many limitations when applied on a large-scale development project. For example, nationally preserved land was transformed into an SEZ and became a golf course, showing FDI and/or domestic investments are approved on the national level. Since the site development of FDI resulted in increasing land prices, low-income families will be increasingly less able to purchase land in that area. During an interview some government officials revealed the following: Regulations, environmental conservation, economic incentives, and the performance of administrative institutions to curb the freedom of the urban land market are needed to support the efficient use of urban lands. Concurrent to this, the urban area extension should also be aligned with the development target of the existing developed areas. The development policy should strongly include a way of overcoming the challenges of the living quality of the inhabitants, urban poverty, and the slum development phenomenon (interview, June 2012). In response to a question regarding physical and environmental problems, the officials stated that environmental problems and increased city chaos arose due loose implementation of UGM master plans. Furthermore, preserved areas were transformed into investment parcels day by day. Regarding the sociocultural values in Vientiane, the most interesting pertains to the community problems. These issues emerged from the effects of land development in central Vientiane. Additional interviews revealed that various changes in sociocultural values resulted from the growth of FDI and domestic investments in LDCs, which attracted laborers both in the country and from neighboring countries. As Vientiane has a small population and is a low-technical-skill region, it is inevitable that it will open its doors to highly skilled workers and state-of-theart technologies. From an interview in June 2012, DPWT officials claimed that FDI has the following impact on sociocultural values: We found that in FDI locations in both greenfield and built-up areas, people have to move far away when projects are approved in their land. A case in point is an FDI project in the That-Luang marsh area of Vientiane, where the planning sector has designated a low-rise housing area as a community. The project aims to build a shopping

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Fig. 4. Urban growth area in Vientiane, 1995 and 2005. Source: Urban Research Institute of Laos, JICA team study (2010)

center, a mixed-use complex, and an entertainment facility. As this project will target only high-income locals and foreigners, the lowincome group will be forced to move to the urban fringe areas (interview, June 2012). FDI promotion refers to two different factors. Some articles assert that the FDI direction will have positive effects on the locality due to the global market flow, skills, technology transfer, and industrial development (Blomstrom and Kokko, 1998; Javorcik, 2004). Other articles claim that some laws and regulations were lax due to the FDI flows (Drezner, 2000). In the case of Vientiane, some laws and regulations failed to be implemented due to the FDI promotion policy. This is said to stem from the lack of collaboration among the key government sectors and the strong implementation of existing

laws and regulations. For instance, land and urban planning laws are promulgated on a national level. However, a lack of collaboration between the national and local levels has been problematic. To improve this situation, the relevant sectors or institutions should be brought into a centralized plan. Focusing on the investment promotion and UGM, urban planning law has been rather strict, and the investment sector prefers to encourage both FDI and domestic investments by giving incentives and promulgating flexible investment taxation laws. In order to achieve suitable urban development in Vientiane, collaboration between the investment and planning sectors should be strengthened. Nevertheless, the significant implication derived from interviews in Vientiane (2012) reveals that the government has been trying to attain a larger budget from the

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investment side. In short, public finances are insufficient for proper urban development and maintenance. Therefore, giving rights to the investment sector is an effective approach to achieve the goal of urban development in Laos.

Conclusions The article has attempted to answer the question, “Does FDI affect UGM in the capital city of Laos, Vientiane?” Laos provides a distinctive example of urban transition and development among Asian countries with a single-party state and centralized regime. Political power is an important instrument that the Lao government has used to guide the country toward stability. Although Laos would be a strict communist country, external communications and economic exchange are not blocked by a strict single top-down power. Peace, political stability, and negotiable economic development policies can also be found in this landlocked country. These conditions are attractive for foreign investors. Globalization and foreign investments represent forms of economic development, social movement, and political guidance that influence growth policies in the capital city of Laos. Because of Laos’s status as a “least developed country” with a per capita GDP of $1320 in 2011, the core policies of developing and boosting the national economy have focused on FDI promotion, domestic investments, and urban extension policies. In this case study of Vientiane, where people prefer a lifestyle in high-quality urban conditions, encouraging FDI was found to be one of the main instruments that the Lao government has used to acquire funds for poverty reduction and long-term development. The key findings obtained from official documents, interviews, and data from the urban development sectors revealed that FDI produced more rapid economic growth than the domestic investment sectors in Vientiane. This implies that FDI is leading the phenomenon of globalization and development in a unique, centrally governed country like Laos. Moreover, analysis of official documents and interviews with top planners and lecturers who have taken part in housing and urban development in Vientiane indicate that some growth management decrees and mandates need improved implementation. The top-down and/or bottom-up system is not the key issue on large-scale development, but rather the collaboration of the many concerned sectors is the crucial key because external influences should be encouraged alongside strategic plans for FDI development projects. There are many academic articles focusing on the global effects and power of FDI, which showed an impact on both natural and planned growth patterns of urban boundaries (Yee Ng and Tuan, 2006; Aguilar and Ward, 2003). In principle, urban planning strategy is a tool for urban expansion and UGM, but some patterns of growth are directed by the actual conditions of economic and political movements without combining power and funds. For instance, zoning control and physical planning, when unified with strategic economic planning, can support UGM and long-term development by driving sustainability. Alternatively, poor UGM policy or poor implementation is associated with inefficient land use, higher infrastructure costs, and increased environmental pollution. However, they should be strongly translated into implementation steps or action plans and investment purposes, including those that promote FDI and local investment. A variety of zoning concepts can be developed to promote specific land use planning and economic motivation goals (Levy, 2006). In addition, public-private partnership should be regarded as a significant element of urban design and planning (Loukaitou and Tridib, 1998). Finally, FDI can serve not only as a means to increase GDP but also as a way of gaining the power to control, which defines both the economic and political movements in the host country (Krugman et al., 2012). Therefore,

effective cooperation between the national and local levels of government should be considered along with physical planning in order to achieve the goals of urban growth management. Indeed, if private and public stakeholders collaborate with one another, the actual value of the UGM goals will be perceived (Bengston et al., 2004). In conclusion, Vientiane can be considered a special case of a developing country with distinctive politics and development policy. The development cycle is a multidimensional pattern that is impossible to state as one concrete phenomenon. Due to the four impacts of FDI (ownership, either sole or joint venture, of final project; size of final project; purpose of final project; and location of final project) on UGM in Vientiane, FDI is simply used as an instrument for boosting the growth of the city’s economy (Lipsey, 1999). Despite significant support from FDI, the strong power of FDI is causing many examples of spatial impact and changes in growth management policies as overlapping factors. Nevertheless, FDI and UGM policies represent the key instruments for achieving national development goals. Therefore, the promotion of investment through incentives based on national investment laws should be carefully considered. According to various results, the paper could provide some suggestions, such as: (1) at the national level, the collaboration of many relevant sectors such as UGM, planning and investment, land management, and related factors should result in a consensus in planning; and (2) at the local level, the responsibilities of the intra-sectors (DPWT, VUDAA, and office of public works and transport) should be clear in the implementation stages and coordinate frequently with all levels. Both directions should be considered concretely to attain sustainable growth in the future for Vientiane. References Aguilar, A.G., Ward, P.M., 2003. Globalization, regional development, and megacity expansion in Latin America: analyzing Mexico City’s peri-urban hinterland. Cities 20, 3–21. Asian Development Bank, 2010. Performance Evaluation Report: Laos People’s Democratic Republic: Vientiane Urban Infrastructure and Services Project, Vientiane Capital, Laos. Asian Development Bank, 2012. Project Completion Report: Vientiane Integrated Urban Development Project, Vientiane Capital, Laos. Beck, U., 2000. What is Globalization? Polity press, UK. Bengston, D.N., Fletcher, J.O., Nelson, K.C., 2004. Public policies for managing urban growth and protecting open space: policy instruments and lessons learned in the United States. J. Landsc. Urban Plan. 69, 271–286. Bergh, A., Nilsson, T., 2010. Good for Living? On the relationship between globalization and life expectancy. World Dev. 9 (38), 1191–1203. Blomstrom, M., Kokko, A., 1998. Multinational corporations and spillovers. J. Econ. Surv. 12, 1–31. Boarnet, M.G., McLaughlin, R.B., John, C.J.I., 2011. Does state growth management change the pattern of urban growth? Evidence from Florida. Reg. Sci. Urban Econ. 41, 236–252. Chaudhuri, S., Banerjee, D., 2010. FDI in agricultural land, welfare and unemployment in a developing economy. Res. Econ. 64, 229–239. Cho, C.J., 2002. The Korean growth-management programs: issues, problems and possible reforms. Land Use Policy 19, 13–27. Christmann, P., Taylor, G., 2001. Globalization and the environment: determinants of firm self-regulation in China. J. Int. Bus. Study 32, 439–458. Committee for Planning and Investment, 2005. Guide for Investment in Laos. Department for Promotion and management of Domestic and Foreign Investment, Laos. Copeland, B.R., Taylor, M.S., 2004. Trade, growth and the environment. J. Econ. Lit. 42 (1), 7–71. Curtris, F., 2009. Peak globalization: climate change, oil depletion and global trade. Ecol. Econ. 69, 427–434. De Mello, L.R., 1997. Foreign direct investment in developing countries and growth: a selective survey. J. Dev. Stud. 34 (1), 1–34. Department of Planning and Investment, 2010. Investment Calling List Guide: 45 Projects in Laos. Ministry of Planning and Investment, Laos. Department of Public Works and Transport, 2012, June. Causal Interview Sessions: Problems and Issues of Growth Policies in Vientiane Capital, Vientiane Capital, Laos. Department of Statistics, 2010. Survey of Establishments in Capital City, Vientiane Capital, Laos. Dreher, A., 2006. Does globalization affect growth? Empirical evidence from a new index of globalization. Appl. Econ. 38, 1091–1110.

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