Publication Code: Y88B
by Chalongphob Sussangkarn et al.
This report is concerned with examining some of the factors influencing income inequality over the longer time frame. There appears to be relationships between the level of income distribution and the level of economic development. To be sure, these relationships are clearly very complex, and some of the important factors may be specific to particular societies and time period. Nevertheless, the idea originally propounded by Kuznet that there is an inverse U-shaped relationship between the level of development and income inequality may be of particular relevance in the context of Thailand's current pattern of economic development.
As clear from the paper by Hutaserani and Jitsuchon (1988), income inequality had been widening in Thailand over the last decade or so. A study of the relationships between income inequality and the level of development may therefore help to clarify the forces at work that have led to the worsening of income inequality in Thailand, and the factors and policies that would help solve the problem.
In our analyses of cross-country data from 45 countries, we found, as have many researchers, that the Kuznets relationship appears to hold. Further, Thailand was found to be on the rising trend of the curve, i.e. the portion where inequality increases with the level of development. This apparent normality of the current trend of development with increasing inequality in Thailand should not however be taken to mean that the pattern is inevitable, and therefore that nothing can be done about it. This would be rather dangerous. There are, in fact, examples of countries who have been more successful at marrying growth with distribution. Rather the value of the analysis lies in highlighting a number of factors that lie behind the relationships between income distribution and the level of development.
Our findings highlighted a number of important factors which tend to contribute to inequality; the higher the share of labor in agriculture (at given GDP level), the lower the ratio of secondary education enrollment to primary enrollment, and the higher the fertility rate. These finds are of particular relevance for understanding the Thai situation. While the National Family Planning Program in Thailand is one of the most successful example of a voluntary family planning program in the World, the situations concerning agricultural employment and enrollment in secondary education are very different. At Thailand's current share of agricultural in GDP, the share of the labor force in agriculture is tremendously high. While some of this may be due to data problems, there are also good economic reasons why it is the case. Similarly, at Thailand's current level of economic development, the secondary enrollment ratio is very low when compared to most of our neighbors, and particularly when compared to the Asian NICs. Both these factors, the high share of employment in agriculture and the low secondary enrollment ratio would contribute to the inequality in Thailand.
The significance of the share of agricultural employment to income inequality highlights the importance of migration as an equilibrating factor to counteract sectoral and regional disparities. We therefore tried to quantified the impact of migration for the Thai economy, and showed that it had been a favorable factor for both the rural and the urban economies. On education, we discuss the close relationships between the pattern of educational enrollment and the structure of the economy, and highlights a number of key policy issues in education that should be tackled to ensure a more equitable development pattern for the future. Thus, in this paper, we drawn upon the lessons that can be learned, through the comparison of the experiences in many countries, about the factors important in the relationship between development and income inequality, and highlight the key issues in Thailand related to these factors.
The next chapter discussed the Kuznets curve hypothesis; the theoretical views on the concept, and the empirical support for the hypothesis. After finding that the hypothesis appears to be confirmed, we carried out simple simulations about when the turning point is likely to occur in Thailand based on alternative assumptions about the future growth path. Chapter 3 turns to discuss the migration issue, and education is covered in Chapter 4. Finally Chapter 5 concludes.
December 1988