The Gregory Thesis Visits the Tropics

A concern about large, export-orientated projects relates to the flows of foreign exchange into the domestic economy that they produce. These flows occur both during the investment phase of the project and subsequently during its operational phase, through export earnings. Foreign exchange inflows produce direct benefits for some groups, but may also indirectly harm others, through an appreciation of the real exchange rate. These indirect outcomes, known as the 'Gregory effect' in Australia and as the 'Dutch disease' or 'booming sector' effect elsewhere, are studied in this paper in the context of a large infrastructure project in Laos.