Thailand's comparative advantage; 1975 and 1985

Abstract

In this thesis, Thailand's comparative advantage and its trade patterns are analysed, for the years 1975 and 1985. The marginal domestic resource cost (MDRC) is employed as a measure of comparative advantage. The MDRC is simply defined as the marginal domestic resources, measured at social cost, used in the production of an industry in order to earn or save a unit of foreign exchange. The trade indices, which are the export performance index and the net trade index, are employed to describe trade patterns. In order to measure the MDRC, commodities and factors are divided into three categories: traded goods, non traded goods and primary factors. The non-traded inputs are decomposed into traded inputs and primary factors and thus these comprise the only two kinds of intermediate inputs involved in the MDRC estimation. Conversion factors, which are the ratios of border prices to domestic prices, are required for changing these input costs valued at market prices to the costs valued at social prices. The conversion factors for the traded inputs are derived from their nominal rate of protection (NRP), whereas the standard conversion factor is used as the conversion factor of primary input-labour. The measurement of the NRP is carried out in Chapter 4. The weighted average NRP of each industry, adjusted for financial assistance, is computed, where the weights reflect the value of production of each composite commodity, valued at border price, as a proportion of the value total production all at border prices. The results show that the NRP is generally low or negative for export-competing industries and high for import-competing industries. The effective rate of protection (ERP), the MDRC, and the anti-export bias are computed, using the input-output matrix techniques, in Chapter 5. Since it is assumed that there is only one mobile factor in production, the MDRC is linearly dependent on the ERP. The results show that export-competing industries receive low protection (ERP) and thus have a low MDRC. On the contrary, the import-competing industries receive relatively high protection, thus having high MDRC. This means that Thailand has a comparative advantage in export-competing industries and a comparative disadvantage in import-competing industries. It was found that over the studied period, 1975 and 1985, although there was no change in the composition of industries that have comparative advantage, the ranking of these industries did change, implying dynamic changes in production efficiency and comparative advantage. The anti-export bias indicates that the protection system was biased against exports. The relationship between the MDRC and the trade indices is considered in Chapter 6. The results show that Thailand's trade patterns follow the comparative advantage in that it exports labour intensive industries, including those that use natural resources intensively. When the factor proportion trade theory of Heckscher-Ohlin was tested, the results suggest that over the period studied, Thailand's comparative advantage shifted significantly towards labour intensive industries. Show more