Explaining structural changes in the Thai economy : implications for agriculture

Abstract

Industrialization in Thailand has led to a rapid growth of the manufacturing sector, relative to other sectors. The overall growth rate of the economy during the last 25 years has been impressively high, and substantial structural changes have taken place. However the traditional agricultural sector has been affected adversely by the growth process. This study examines some of the economic factors that have contributed to the past growth of the Thai economy and attempts to analyse, in a general equilibrium approach, the impact of exogenous shocks on the agricultural sector. Expansion of cultivable land in the past assisted the crop diversification program and in the expansion of agricultural production. The rapid growth of the manufacturing sector has tended to cause some upward pressure on real wages and attracted labour from agriculture. The price policy pursued by the government has had an urban bias and discriminated against agriculture while the manufacturing sector received assistance from the industrial protection policy. The recent deterioration in the terms of trade, together with the fixed exchange rate policy, has tended to enhance the adverse effects on the agricultural sector. The findings of this study supports the view that a policy change towards trade liberalization should lead to more efficient use of resources in the economy and benefit agriculture. It should be noted, however, that the model used in the analysis does not incorporate unemployment and technological change and the impact of a change in the terms of trade is only partially analysed. Despite the limitations of this model, the results indicate the potential of this type of modelling exercise.