Sources of economic growth in Thailand, 1970-89

Abstract

During the past three decades the Thai economy has experienced annual average real growth o f 7.1 per cent. In the late 1980s and early 1990s, growth accelerated. Thailand became one of the fastest growing economies in the world. Economic growth is reflected in rising per capita income and in health and education indicators o f standard of living. Economic policies have played a key role in growth, in particular, making recent high growth possible. In this study, two major sources of growth, input growth and total factor productivity (TFP) growth, are analyzed. Production function analysis is the main methodology. Total factor productivity is estimated in three forms: TFP growth (per cent per annum), share of TFP contribution to output growth and a TFP level index. Input growth was the dominant source of growth in the long-run period (1970 - 89), but TFP growth was a major source of the recent rapid acceleration of the economic growth. Input growth is constrained by the need to curtail population growth for economic and social reasons and by limits to the expansion o f cultivatable land. The emphasis needs to be on increasing productivity to sustain growth in the long run. Factors affecting TFP growth are examined. Technological advance and a competitive environment are found to be two major factors on productivity. Research and development has been significant in improving technology while foreign direct investment has contributed to the transfer of advanced technology. Policies such as protection and offsets to it to increase exports, market structure and organization and management all had important influences on the competitive environment and affected TFP growth. In the early years, protection not only caused an inefficient allocation of resources, but also led to inefficient resource utilization, notably as a disincentive to improving production technology. Exports, on the other hand, promoted international competitiveness. Market structure, measured in this study by an industrial concentration ratio o f large-scale firms, also affected TFP growth since high concentration ratios meant that large scale firms had monopoly power. Organization and management, proxied by dummy variables, is used to explain the different timing o f the difiiision, as well as the rate of adoption, of technology.