Thailand: Economic Growth and Development - Research Paper Example

?Thailand: Economic Growth and Development Table of Contents Table of Contents 2 4 Literature survey 6 Economic growth 6 Education level 7 Population Growth 8 Income Inequality 9 Research Methodology 10 Research Philosophy 10 Research Approach 10 Research Strategy 11 Research results and analysis 11 Economic growth 11 Health 14 Literacy 15 Incidence of Poverty and effect on income inequality 16 Findings 18 Limitations 19 Implications 19 Conclusion 19 Reference List 21 Abstract The main purpose of this research paper is to study in detail the economic growth in Thailand and to find out the possible factors that have attributed to this growth. The main research question aims to find out the impact of economic growth on three main indicators of economic development namely, health, literacy and incidence of poverty and inequality. This is a qualitative paper drawing its conclusions mainly from quantitative analysis done by institutions such as, the Bank of Thailand and Asian Development Bank. The research strategy is mainly deductive in nature. The findings from this paper suggest that Thailand has experienced a steady surge in the GDP over the years. There has been positive impact of this growth on the social factors like, level of literacy, conditions of Health and finally, the impact on poverty of the nation. This work has identified two areas of shortcomings for Thailand to improve: it has to focus on the quality of secondary education and reduce the inequality of income between the rich and the poor. Thailand has been a success story and the policies followed by it have been taken as a lesson for other developing economies to follow. Thailand’s incredible growth has put it in the league of the other Asian tigers. This work has found out that the regional pockets of poverty in Thailand needs serious attention from the Government. The government must follow inclusive growth policies to include the poorest of the poor into the formal structure of the labor market in order to reduce the income inequality. Introduction The economic progress witnessed by Thailand is perhaps one of the most interesting economic development literatures that continue to interest economists all over the world. Such in fact has been the pace of growth of Thailand’s economy, that in a recent study by the World Bank, Thailand has been upgraded to the status of a high middle-income economy from a low middle-income one in 2011 (The World Bank, 2013). So, the pertinent question revolves around the wide economic changes during the period of 1980’s to 2000 that had led the economy to achieve the status that it had achieved today. It was observed that during the specified time period, Thailand had experienced an increasing trend of capital inflows by opening up its economy and integrating it with the world economy (Beja, Junvith and Ragusett, n.d.). About two decades ago, Thailand experienced a growth that had become exemplary worldwide and since then, its success story acts as a benchmark for the other economies to follow. However, right at the end of the millennium, the noteworthy rise came to a grinding halt due to the unfavorable conditions of the world economy, better known as the Asian crisis. This paper aims to understand the factors which were responsible for such high rates of growth in Thailand. For the research purpose, the period from 1980’s to 2000 has been considered. The main objective is to evaluate the growth of the economy along with studying the growth of population, in this period. Then, the impact of growth on the level of literacy and conditions of health will be analyzed in details. An inductive methodology is used for the purpose. Based on the findings, the results are drawn accordingly. The paper mainly tries to understand the reasons behind the economic growth admitting the fact that there was indeed a huge growth (Chuenchoksan and Nakornthab, 2008). The most astonishing aspect, inspite of the definite income growth, is the spectacular levels of income inequality. The details are explored in the following sections. Literature survey A vivid picture develops from studying the economy of Thailand in the 1980’s. It was the time when the country had experienced rapid economic growth. The most striking feature, however, is the fact that even though the country had experienced high growth, yet it was not an inclusive one (De Mello and Dutz, 2012). The failure on the political and technocratic levels about the factors that needed attention had mainly resulted in the failure of the economy during the Asian crisis. However, it is important to understand that Thailand had made a fast recovery in the later periods. So, it can be said that Thailand had exhibited a great deal of macroeconomic stability (Christensen et al., 1996). The main reason behind this growth surge was the liberalized regime followed by the country in its foreign trade policies and investment ideologies. Economic growth The fast growing economy of Thailand had certain variances against the ones established by conventional wisdom. The same was observed in comparison to the other countries of South-East Asia like, Korea or Philippines. In those countries, the level of investment was considerably higher compared to that of Thailand, after the Second World War. Then a question that comes to the mind is: what could be the possible factors that had led to the spectacular performance of the country? There are three reasons which had attributed to the growth. Firstly, there was a surge in the number of enrolments in the school. Secondly, the political environment had favored import liberalization and export promotion measures. Apart from protecting a very few industry from competition, most were open to competitiveness. Thirdly, Thailand is one of the very few countries which had shown very little volatility in the variance of the exchange rates. This factor has been the most significant one in the consistent performance of the country throughout. When a country has favorable terms of trade, then there is an overall increase in its exports. This rapid growth of the economy had effectively reduced the level of absolute poverty of the country as majority of the population could access the basic amenities of life. Though the country had experienced reduction in the absolute level of poverty, there still existed a high level of income inequality or in other words, relative poverty showed proportionately lesser decline (Jitsuchon, n.d.). Education level A country’s standard of development can be understood from its education level. This is primarily the reason why this parameter is included in the Human Development Index. Education is an extremely important factor in the formation of human capital of any country and higher the level of human capital formation, better is the level of development of that country. Theoretical studies had revealed that the literacy level in Thailand was well developed. However, compared to other Southeast Asian countries, the rate of human capital formation did not increase proportionately. The National Primary Education Act was passed in 1980 and this Act had expected every village to have schools. This had occurred owing to the shift of the department of education from the hands of the military to that of the ministry of education (Sangnapabowron, n.d.). This was mainly because the enrolment rates had improved mainly in the primary education, but the same did not proportionately increase for the secondary education (Chuenchoksan and Nakornthab, 2008). It was also seen that Thailand had a fractional segment of population with high levels of education. Thailand is among those countries which had put a great deal of stress on education in order to make compulsory education trickle-down to all the segments of the society, irrespective of status. The number of Lower Secondary schools was raised from 5661 to 7991. Similarly, the number of Upper secondary schools was also increased from 2041 to 2817. These developments had raised the gross enrolment rate to 37% for both males and females combined (Mongkhonvanit, 2010). Population Growth In terms of population growth, the political authority of Thailand had followed strict measures. The Ministry had belonged to the school of thought which supported the view that a limited level of population growth was essential for the rapid development of the country. Post world war, there was a rapid development in the field of science and technology which had reduced the mortality rates and increased life expectancy at birth, rapidly. Owing to this, there was a steep rise in the population rates all over the world. In order to curb this, most of the South-east Asian countries had adopted a “controlled” population growth policy. The execution of this policy had triggered a rapid economic growth in these countries. The idea behind the concept is that if the GDP growth of the country is high and its population level is low, then per capita income for the individuals increases along with the improvement in the overall development of the country. Again, if the level of population growth is not controlled, then there is an adverse effect on the health and educational aspects as the social expenditure per capita falls. Thirdly, if the population growth is uncontrolled, then poverty level is also negatively affected. The works of Ahlburg has shown that rapid increase in population leads to both lower wage rates and depreciation in the formation of human capital. The works of Intal cited by Ahlburg (1996) has again shown that poverty for smaller families is lesser compared to the larger families (Ahlburg, 1996). Finally, a higher population always exerts additional pressure on the environmental resources, thereby hampering the growth of a country. Income Inequality The even distribution of income with rising levels of GDP ensures that the development of a country is even. Whether the level of inequality will increase or not with rising income depends on the inclusion of the priority sector in the investment strategies, which will ensure that the growth would be even. A country with high level of GDP growth does not ensure that the growth in the economy would “trickle down” to every segment of the population. This was precisely the nature of the problem in Thailand. Though there was a rapid growth of GDP, still there was glaring levels of income inequality. A recent study made by ADB has concluded that the level of income inequality in Thailand is evidently the highest in Southeast Asia. There is huge degree of regional inequality in income. The main reason that has been attributed to this is the inability to formally include the low-income families in the financial sector of the economy. According to Rostow’s stage theory of growth, a country passes through a transition from agriculture to industry to services, as it makes its journey towards development. Although Thailand had followed the stages, yet the number of poor people engaged in agriculture has remained very high. The labor market still has a significant portion engaged in the informal sector who earns low-wages. Few regions show very high-income inequality even though the country as a whole has managed to decrease the overall level of poverty (Bird et al., 2011). Research Methodology Research methodology relates to the overall process that is to be followed in order to answer the final research question. It has been defined as an onion, where the layers are to be peeled off in order to reach the core objective of the research. The “layers” are research philosophy, approach, strategy, choice, time horizon and techniques. The method in which each aspect is approached and analyzed has been described below: Research Philosophy There are three types of research approaches that can be used by the researchers depending on the nature of their work. These are positivism, interpretivism and realism. As this paper attempts to understand the growth of Thailand’s economy based on analysis of secondary data collected from various sources, interpretivism is the appropriate framework to be used for the purpose at hand. Research Approach There are two types of research approaches namely inductive and deductive approach. Inductive approach formulates a hypothesis and tries to establish it by various empirical records. While in deductive approach, the theoretical question is provided and the objective is to check whether the hypothesis is to be accepted or rejected. In this paper, the aim is to establish the reasons that had led to the spectacular economic growth in Thailand and the impact it had on various social factors. For this reason, deductive approach seems to be the appropriate method of proceeding with the research work. Research Strategy There can be numerous ways of formulating the strategy in which the researcher can proceed like, survey, case study, experiment and archival research. The nature of this paper is a qualitative one based on data collected from sources like, the government archives, World Bank and other such sources. So, the research strategy is based on archival research. Research results and analysis Economic growth Rostow’s stage theory of economic growth describes that as an economy transits from an underdeveloped economy to a developed economy, it follows the path from agriculture to industry to services. The following table shows the sectoral share of GDP of Thailand. Table 1: Sectoral Share of GDP in Thailand 1980’s 1990’s Agriculture Industry Services Aggregate Agriculture Industry Services Aggregate 6.9 42.0 51.0 7.6 3.8 53.5 42.6 4.3 Source: (Park and Shin, 2012) This table clearly shows that during 1980s, services made the highest contribution to the GDP by following Rostow’s predicted path of economic transition. However, in the period of the 90’s, heavy industrialization of the economy took precedence and the service sector had slowed down. In the secondary sector, manufacturing had a significant contribution in the overall growth, while the share of construction and mining were seen to decline. In order to boost the industrial sector, import tariffs were provided. The overall structure was capitalist with minimum interference from the government and the political environment favored competition, thereby enhancing growth (Park and Shin, 2012). The industry, on the other hand, depended on agriculture for its input, thereby providing considerable forward and backward linkages between the sectors (Mongabay.com, 2013). The economic growth in Thailand was mainly capital intensive, which was similar to the experiences of other Southeast Asian economies. This period was also marked with an improvement in the labor productivity. In fact, labor productivity was evident in all the three sectors. The following graph depicts labor-productivity growth in all these three sectors. Figure 1: Labor productivity Growth: 1972-2007 Source: (Chuenchoksan and Nakornthab, 2008) The above figure shows that the productivity growth in the manufacturing sector was the maximum among others. The sectoral share of GDP showed a decline. However, given its relatively lesser contribution to the GDP, this sector also exhibited an increase in the productivity. So, not only did Thailand experience a massive increase in its GDP, it had also exhibited a structural change in the contribution of the GDP as well. The main factor behind the aggregate growth was the rise in the stock of capital. In addition, the rate of growth of foreign investment was one of the driving factors. The foreign investments greatly boosted the technological improvement, which had catapulted the exponential rise (Chuenchoksan and Nakornthab, 2008). Now, this paper aims to analyze the consequences of this growth on the social factors that actually determine the developmental standard of a nation. In this regard, it is important to understand the difference between growth and development. A high level of growth in a country does not ensure that it will have a high level of overall economic development. To understand the concept, the Human Development Index was introduced to measure the development of the country made in the fields of life, education, literacy, standard of living and quality of life. In this paper, the areas that are to be focused are population, health, education and poverty. Health The following graph shows the infant mortality rates in Thailand. Figure 2: Infant mortality (deaths per 1,000 births), 1960 to 2002 Source: (Warr, 2011) It can be clearly understood from analyzing the graph that the infant mortality rates in Thailand have declined consistently over the last 40 years, thereby depicting the fact that the country has been quite successful in improving its health standard. In the beginning of the study, the infant mortality rates were as high as 50 per 1000 births, but this value was only a mere 6.5 in the year 2002. This has long-term implications given the fact that a healthy population culminates into a healthier workforce. This automatically improves the productivity in terms of both the number of working hours and the workforce (Warr, 2011). Literacy The following figure shows the literacy level rise: Figure 3: Literacy Rate Thailand Source: (Warr, 2011) The above graph shows that the rising literacy levels. The literacy at the national level rose from 71% to 95% from the period of 1960 to 2002. The most striking feature about this was that the difference of literacy rate between both the sexes had narrowed down considerably. The literacy level for males rose from 80% to 97%, while that of the females rose from 61% to 94% in the period under study (Warr, 2011). Incidence of Poverty and effect on income inequality This information has been tabulated below. Figure 4: Poverty incidence and Inequality Source: (Warr, 2011) The analysis of the above table reveals the fact that poverty has shown a consistent decline in the subsequent years. However, the percentage of poor people living in the rural area is considerably higher than that living in the urban area. It was found that 93% of the poor people lived in the rural areas. However, this comprised only 63% of the population (Warr, 2011). The Gini coefficient has been used to measure the inequality in income. A feature evolves on studying this table. However, Thailand had experienced high levels of economic growth, which should have trickled down evenly over the entire population. The data here reveals that the Gini coefficient has remained almost stagnant with little variation. If the Gini coefficient is closer to 1, it implies higher inequality. This shows that inspite of the overall growth, it had benefitted the masses in a non-uniform manner (Warr, 2011). Findings The main findings can be summarized as: The aggregate economic growth of Thailand has been exemplary over the last few decades. Other developing countries of the world have used Thailand’s growth strategies to achieve higher growth later. The main factor which has contributed in this growth is the rise in capital and the eventual capital formation. Other factors like, improvement in labor productivity, were also responsible. The impact of the aggregate economic growth on the social factors was also profound. The basic indicators of development like, education, health and poverty, had showed a considerable decline with rising GDP levels. It was observed that not all was good for Thailand. Though Thailand has been immensely successful in raising its income, it has been unsuccessful in reducing the glaring income inequality despite its best efforts. Limitations This paper draws its references mostly from secondary sources of data from scholarly works, which are burdened with irregularities and gaps, at times. The data required for calculation is mostly derived from other secondary sources. The research was not based on any primary sources of data. The research strategy was deductive in nature and it suffers from the disadvantage that the results based on them are restricted only when the assumptions are fulfilled. It is useful only in deriving economic theories. Implications The big picture that materializes after the study is that Thailand’s strong macroeconomic stability has driven the economy to a higher trajectory of growth. This research shows that the only factor which hampers Thailand’s success is the inability of the nation to reduce its income inequality. The rural areas require considerable attention from the government for reducing the gap in the income of the rich and the poor. Inclusive growth strategy by the government to include the poor in the formal labor market can be helpful in reducing the income inequality. Conclusion The limited research based on this paper will provide a basic understanding of the aggregate economic growth of Thailand. Following the footsteps of the other Asian tigers, Thailand has made its journey towards becoming one of the fastest growing economies of the world. Thailand’s experience can be set as a framework for other developing economies. A pro-market nature, limited government intervention and outbound growth strategies had fuelled a steady flow of foreign investments in the economy. The foreign investments have been the key factor in raising the overall output. As any standard production, function in economics would predict that an improvement in the technology gives an unparallel boost to the overall production. The foreign investments in Thailand were mainly used to import technological advancements. This was the key factor that had promoted growth. The government’s social expenditure has also been strategically used to reduce overall poverty and give the masses a better access to health, education and other basic social amenities. All these factors in turn had facilitated a healthy labor force and enhanced productivity. In addition, capital formation gained momentum, which in turn had raised production, causing the GDP to grow further. The only dark spot is the regional concentration of income inequality. The root cause for this shortcoming has still not been properly explored and requires attention. Any further development strategies should centre on the poor in the rural areas. Apart from this, the level of secondary level education also requires the attention of the government for significant improvement. Reference List Ahlburg, D., 1996. Population growth and poverty. Heidelberg: Springer-Verlag. Beja, E.L. Junvith, P. and Ragusett, J., n.d. Capital Flight from Thailand, 1980–2000 [pdf] Available at: [Accessed 25 November 2013]. Bird, K., Hattel, K., Sasaki, E. and Attapich, L., 2011. Poverty, income inequality, and microfinance in Thailand [pdf] Phillipines: Asian Development Bank. Available at: [Accessed 26 November 2013]. Christensen, S., Dollar, D., Ammar, S. and Vichyanond., 1996. Thailand: the institutional and political underpinnings of growth. Washington, D.C.: The World Bank. Chuenchoksan, S. and Nakornthab, D., 2008. Past, Present, and Prospects for Thailand’s Growth: A Labor Market Perspective [pdf] Bank of Thailand. Available at: [Accessed 25 November 2013]. De Mello, L. and Dutz, M.A., 2012. Promoting inclusive growth challenges and policies: challenges and policies. Paris: OECD Publishing. Jitsuchon, S., n.d. Thailand’s Economic Growth: A Fifty-Years Perspective (1950-2000). [pdf] Available at: Read More