Transcript Sources of Growth

Economic Growth in Thailand:
A Macroeconomic perspective
Barry Bosworth
26 October 2006
Growth Performance
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The Thai economy has achieved high growth over the
past quarter century
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The manufacturing sector has expanded even more
rapidly
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6 percent per annum, 1977-2005
8 percent per annum, 1977-96 (pre-crisis)
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
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Overall growth slowed to 5 percent
GDP and Investment, 1970-2005
5,000
billions of Bhat
4,000
GDP
3,000
2,000
1,000
Investment
0
1970
1975
1980
1985
1990
year
1995
2000
2005
Overview & Objectives
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Analysis of Thailand’s growth: 1977-2005
Growth Accounting framework examines:
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Roles of capital accumulation & TFP
Both aggregate & sectoral analyses
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Extensions on capital accumulation
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Agriculture, Industry (Manufacturing), and Services
Role of Factor Reallocations
Returns to schooling
Saving & investment
Additional detail on services
Growth Accounting
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Develop indexes of growth in output and
factor inputs.
Adjust for quality change in labor
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Use adjusted factor shares to measure
contribution of factor inputs.
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Increase in years of schooling
Need to account for self-employed
Obtain estimate of TFP as a residual
Basic Growth Identity
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Output Growth as a function of growth in inputs
and TFP
d ln Q  sk d ln( K )  sl d ln( L)   ln TFP
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si is factor income share
Assumes competitive markets where price is equal to
marginal product
Basic Data
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Largely drawn from national accounts for output
and capital stock
Employment is from the Labor Force Survey
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Survey provides information on educational
attainment and wage rate by industry.
Measure the return to schooling
Prior Growth Accounting Studies
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Major studies
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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
Aggregate Economy
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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
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Output did not return to prior path
Recession largely absorbed by declines in
employment and capital accumulation.
Total Economy
6
Total
Index
5
Labor quality
4
Employment
3
Capital
2
TFP
1
1975
1980
1985
1990
Year
1995
2000
2005
Agriculture
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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
Agriculture
2.5
Total
Employment
2
Index
Labor quality
Capital
1.5
TFP
1
1975
1980
1985
1990
Year
1995
2000
2005
Manufacturing
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Growth largely due to increased labor and
capital
Gains in TFP are quite modest
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Contract manufacturing with little innovation.
Capital goods are imported (embodied
technology)
Sharp deceleration in capital accumulation
after 1997.
Manufacturing
10
Total
9
8
Index
7
6
Labor quality
Employment
5
4
3
Capital
2
TFP
1
1975
1980
1985
1990
Year
1995
2000
2005
Services
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Slower output growth
Dominated by increased labor input
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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.
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Financial sector disruptions, measurement issues
Need for more disaggregation of services
Services
5
Total
4
Labor quality
Index
3
Employment
2
Capital
1
1975
1980
1985
1990
0
Year
1995
2000
TFP
2005
Component Service Industries
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Very diverse patterns of growth
Difficult measurement problems
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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
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TFP growth highly negative
Trade negatively affected
Contribution to Output Growth,
1980-1996
Transportation
Trade
Finance
Output
9.2
7.2
14.1
Contribution of:
Employment
Education
Capital
TFP
3.1
0.4
2.6
2.7
0.4
3.8
4.0
0.3
2.5
2.8
0.2
6.8
Contribution to Output Growth,
1996-2005
Transportation
Trade
Finance
Output
4.2
-0.1
-4.7
Contribution of:
Employment
Education
0.9
0.9
1.5
0.4
0.6
0.3
0.9
1.2
0.4
-2.3
1.1
-6.6
Capital
TFP
Reallocation Effects
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Weighted sum of sector TFP changes accounts
for less than half of change in aggregate.
Total economy
Weighted sum of sectors
Resource reallocation
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1977-96
1.6%
0.5%
1.1%
1999-2005
2.1%
1.0%
1.1%
Gains from moving workers out of lowproductivity agriculture into industry and
services.
Regional Comparisons
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Sources of growth in Thailand are very typical of
East Asian economies.
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Large contribution from capital accumulation
Ranks in middle for TFP
Similar to Alwyn Young results for other East Asian
countries.
Sources of Growth in Asian Economies,
1975-2003
average annual percentage change
Contribution of:
Output
Region/Period
Output per
Physical
Worker
Capital
Education
TFP
Thailand
6.3
4.2
1.9
0.5
1.7
China
8.7
7.0
2.6
0.4
3.9
Indonesia
5.6
2.9
2.2
0.5
0.1
South Korea
7.0
4.7
2.9
0.7
1.0
Malaysia
6.5
3.2
2.0
0.5
0.7
Philippines
3.2
0.4
0.7
0.4
-0.7
Singapore
6.9
3.8
2.0
0.5
1.3
Taiwan
7.1
4.9
2.5
0.4
2.0
India
5.2
3.2
1.3
0.4
1.5
Conclusion
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Bulk of growth is due to increased use of capital
and labor
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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