Publication Code: Y89I
by Atchana Wattananukit, and Teerana Bhongmakapat
For more than two decade the external sector has played a very crucial role in Thailand's economic growth and dynamism. The dramatic economic recovery witnessed in recent years has been driven by considerable export expansion and an influx of direct foreign investment. The growth of this external sector has produced the most visible change in Thailand's economy. Given the right direction our external sector will not only sustain its long run of economic growth, but it can also foster an industrial explosion.
The objective of this study has been to explore and evaluate the impact of Thailand's external sector on domestic performance. General approaches were based on a macroeconometric model and CGE. These two models were adopted to answer following questions: To what extent does the external sector affect the overall domestic economic growth? Does export expansion improve the country's financial stability or does it induce more imports resulting in a worsening balance of trade? Have the majority of Thaipeople benefited from this recent rapid export expansion? How does it affect overall income distribution of the country? How do manufactured exports and agricultural exports differ in terms of their impact on growth stability and income distribution in the country? The answer to these questions will provide a reliable basis for policy implementation and must be addressed to improve policy choice.
A Large proportion of empirical evidence found in this study has conviced us that export expansion and domestic economic growth will have a positive impact. A hypothetical 1 percent increase in exports of goods and services leads to an approximately 0.32 percent increase in real GDP and 0.46 percent in term of nominal GDP. In addition, the study team found that the contribution of export value added to total GDP during 1986-1988 was about 33.74 percent of total GDP growth.
Export expansion does, however, raise the overall inflation of the economy. It has been found in this study that a 1 percent rise in exports leads to an 0.17 percent increase in the GDP deflator.
Export growth also create a considerable amount of imports. The study team confirmed this when testing whether the recent surge in imports resulted from an investment boom; from the consumption of luxurious commodities; or from export expansion. The results showed that although investment did have the highest import value, followed by consumption, export ranked first in terms of induced imports (its direct import quota is nil). Therefore, a one baht increase in exports leads to the highest induced import when compared to an equal increase in investment or consumption. The overriding reason for this high induced import figure of behalf of exporting industries is technology, which usually imported because of their quality consciousness.
Because of this continuing heavy import dependence export growth, especially of manufactured products, exerts a huge drain on the balance of trade. Our results seemed to suggest that the recent export expansion failed to improve the country's balance of trade. However, in terms of internal financial stability, this export expansion has helped, according to our data, to increase government revenue at a faster rate than its expenditure which has result in reducing the government's deficit and borrowings.
The study team also investigates structural change in respect to the causality pattern between export growth and industrial development. The results revealed that, up to 1987, export expansion led to increasing the role of manufactured outputs in the Thai economy. Such findings lend plausibility to the export-led growth strategy of industrial development.
The impact of export expansion on income distribution has been investigated through both the macroeconometric model and the CGE. Test results would sugget that a hypothetical one percent increase in exports leads to an approximate 0.41 percent rise in wages, 0.64 percent in the income of unincorporated enterprises, and 0.61 percent in corporate incomes.
Simulated results from CGE model showed that during 1983-1987, increased export earnings lead to a slightly worsening income distribution. However, these results may be somewhat underestimated since the simulation was done under the assumption that world prices would remain constant and reflect a similar pattern of export earnings. However, the adverse impacts of export expansion on income
December 1989