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Economic Growth in Thailand: A Macroeconomic perspective

Economic Growth in Thailand: A Macroeconomic perspective. Barry Bosworth 26 October 2006. Growth Performance . The Thai economy has achieved high growth over the past quarter century 6 percent per annum, 1977-2005 8 percent per annum, 1977-96 (pre-crisis)

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Economic Growth in Thailand: A Macroeconomic perspective

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  1. Economic Growth in Thailand:A Macroeconomic perspective Barry Bosworth 26 October 2006

  2. Growth Performance • The Thai economy has achieved high growth over the past quarter century • 6 percent per annum, 1977-2005 • 8 percent per annum, 1977-96 (pre-crisis) • The manufacturing sector has expanded even more rapidly • 8 percent per annum, 1977-2005 • 10 percent per annum, pre-crisis • 1997-98 crisis had a large and long-lasting impact on output and investment • Overall growth slowed to 5 percent

  3. GDP and Investment, 1970-2005

  4. Overview & Objectives • Analysis of Thailand’s growth: 1977-2005 • Growth Accounting framework examines: • Roles of capital accumulation & TFP • Both aggregate & sectoral analyses • Agriculture, Industry (Manufacturing), and Services • Role of Factor Reallocations • Extensions on capital accumulation • Returns to schooling • Saving & investment • Additional detail on services

  5. Growth Accounting • Develop indexes of growth in output and factor inputs. • Adjust for quality change in labor • Increase in years of schooling • Use adjusted factor shares to measure contribution of factor inputs. • Need to account for self-employed • Obtain estimate of TFP as a residual

  6. Basic Growth Identity • Output Growth as a function of growth in inputs and TFP si is factor income share • Assumes competitive markets where price is equal to marginal product

  7. Basic Data • Largely drawn from national accounts for output and capital stock • Employment is from the Labor Force Survey • Survey provides information on educational attainment and wage rate by industry. • Measure the return to schooling

  8. Prior Growth Accounting Studies • Major studies • NESDB - Macroeconomic Division • TDRI –Tinakorn and Sussankarn (1996,1998) • APO – Achara, Bangorn, and Kamjara (2004) • Fiscal Policy Research Institute • BOT – Katharit (2001) • Generally find negative or small positive rates of growth in TFP • Large capital contribution • Different estimates of improvement in labor quality

  9. Aggregate Economy • Growth dominated by increases in employment and the capital stock. • TFP growth is a small positive contribution • The crisis of 1997-98 appears to have imposed a permanent cost on the economy • Output did not return to prior path • Recession largely absorbed by declines in employment and capital accumulation.

  10. Agriculture • Large reserve of underemployed labor • Productivity level far below nonagricultural sectors • Low output growth • Employment declines in recent years • Large increase in capital contribution. • Modest growth in TFP

  11. Manufacturing • Growth largely due to increased labor and capital • Gains in TFP are quite modest • Contract manufacturing with little innovation. • Capital goods are imported (embodied technology) • Sharp deceleration in capital accumulation after 1997.

  12. Services • Slower output growth • Dominated by increased labor input • Largest gains in educational attainment. • High factor share weight assigned to labor • Most capital intensive industry (housing?) as measured by K/Y; but capital contributed modestly to growth. • TFP change is negative – particularly after 1997. • Financial sector disruptions, measurement issues • Need for more disaggregation of services

  13. Component Service Industries • Very diverse patterns of growth • Difficult measurement problems • Reasonable measures for transportation, trade, and banking. • Prior to 1997, strong gains in labor productivity and decent gains in TFP • Finance sector suffered extraordinary losses after 1996 • TFP growth highly negative • Trade negatively affected

  14. Contribution to Output Growth, 1980-1996

  15. Contribution to Output Growth, 1996-2005

  16. Reallocation Effects • Weighted sum of sector TFP changes accounts for less than half of change in aggregate. 1977-96 1999-2005 Total economy 1.6% 2.1% Weighted sum of sectors 0.5%1.0% Resource reallocation 1.1% 1.1% • Gains from moving workers out of low-productivity agriculture into industry and services.

  17. Regional Comparisons • Sources of growth in Thailand are very typical of East Asian economies. • Large contribution from capital accumulation • Ranks in middle for TFP • Similar to Alwyn Young results for other East Asian countries.

  18. Sources of Growth in Asian Economies, 1975-2003

  19. Conclusion • Bulk of growth is due to increased use of capital and labor • Reliance on existing technologies implies limited gains in TFP within industry • Large gains from resource reallocations out of agriculture. • Financial crisis led to sharp reductions in the rate of investment and large output disruptions in some services • Future growth potential of 6-7 percent • Services could provide a broader base for future growth

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