Transcript Fiscal Policy Research Institute

Sustainable
Growth, Regional Balance,
Project Funding
For Infrastructure
Development
&
in
Bangkok
Social Development for Poverty
Comments of Session I: Growth, Regional Balance and Poverty Reduction
Kanit Sangsubhan, Ph.D.
Fiscal Policy Research Institute
Oct 26, 2006
Bangkok, THAILAND
Fiscal Policy Research Institute
Economic Growth in Thailand, Barry Bosworth (2006)
75% Gross INV
25% Net INV
Quantity LFS (2.6%)
Quality: Education
attainment and work
experience (0.6%)
Table 9: Source of Growth (1977-2004)
d ln Q  sk d ln( K )  sl d ln( L)   ln TFP
Factor Income
share (%)
L adjusted
K
Land
Ind
Sers
48
62
52
38
0
0
25-30%
Ag
40-45
55
< 10
TDRI 22%
51-52%
TDRI 61%
16-21%
TDRI 16%
TDRI (1980-95)
Fiscal Policy Research Institute
Economic Growth in Thailand, Barry Bosworth (2006)
Quantity LFS (2.6%)
Quality: Education
attainment and work
experience (0.6%)
75% Gross INV
25% Net INV
Table 9: Source of Growth (1977-2004)
d ln Q  sk d ln( K )  sl d ln( L)   ln TFP
Factor Income
share (%)
L adjusted
K
Land
Ind
Sers
48
62
52
38
0
0
25-30%
Ag
40-45
55
< 10
4-7%
51-52%
Each year of schooling
+7% productivity
Return on schooling average
9% late 1970-80 10% early 1990
9% by 2000
University graduate earn
140% more than elementary
Wage differential Men : Woman
Declined --10-20% different
16-21%
TDRI 10%
Contribution of Quality of labor
%
Bosworth
L-quality
4-7
TDRI
19.8
FPRI
9.1
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Observations
• Long-term TFP 1.6 % a year of around 6% GDP growth
• Period after the crisis (1999-04) gain from cyclical component and low
investment fall into TFP (16% contribution share)
• After the crisis (1999-2004)
AG: growth contributed mainly by capital input (K:L:TFP =14:68:17)
IND: K:L:TFP =34:59:5
SER: contributed mainly by labor input K:L:TFP =63:46:-9 (due to
financial sector)
• Quality of labor contribution share of AG and IND around 5-6 % -- 10% for SER
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Main Conclusions
1.
2.
3.
4.
5.
6.
Thailand’s growth contributed mainly for quantity of K and L inputs
Labor quality contribution is low
TFP is low
Large employed workers in the AG
Low productivity in AG (1/5 of non-AG)
Gain of aggregate TFP come from relocation of resource among
sectors (11%)
Because of the crisis, a large portion of productivity growth loss permanently.
Growth resumed new path, lower than the old path (banking, wholesale, retail trade)
Thailand no longer has high rate of capital accumulation
Problem in financial sector limits the potential output growth
Large reserves of labor in AG/facing competition in the low-skilled manufacturing
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Suggestion and Forecast
• Suggestion: upgrading skill level of work force
• Forecast: potential growth 5.5-6.8%




2 % growth of labor force
0.8-1.2% growth contribution from education and skill improvement
29.5-33.2 % of gross investment (22% in 2004)
1-2 % growth of TFP
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1997 Crisis
Under-utilization of Capital
Potential Cap U
Utilization Gap
Actual Cap U
Source: FPRI
Fiscal Policy Research Institute
1997 Crisis
Under-utilization of Capital
Potential Cap U
Actual Cap U
Demand Management
Supply
Management
Source: FPRI
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Reform & Recovery, K. Martin, A Kopaiboon, K. Bhaopichr(2006)
• Give weight to Macro stability / Reform and Regional Integration
• View from demand side
Strong private consumption
Consumption stimulus and residential investment
 Strong exports
Weak investment
FDI stronger after the crisis (M&A + restructure into export base)
• How to revive private investment
Continue opening
Lowering costs for production
Better integrate FDI in domestic economy
Support Knowledge and innovation
Fiscal Policy Research Institute
Reform & Recovery, K. Martin, A Kopaiboon, K. Bhaopichr(2006)
• Past success of exports
Law and regulation reform to encourage private investment
Trade policy reform (tariff reduction due to AFTA and others)
Trade facilitation
External factors (world GDP, regional integration, and China factor)
• Regional integration in trade and investment
 EA-FDI to Thailand 25% to 65% (1998-00 and 2001-03)
Regional production network – automobiles and electronics
Thailand’s trade (export+import) to EA-9 shared 48 % of total trade
• Can strong export growth continue?
Better trade facilitation and investment climate
Integrate FDI through Value-addition – Skill, innovation and knowledge
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Phase I.: Bubble
Fiscal Policy and Development Phases
Phase II.: Deficit to stimulate
Phase III:
Demand
Balance
1,200,000
1,000,000
Reve
nue
Expen
diture
Supply
Management
800,000
•Poverty
• Quality HR/Social
600,000
Demand Management
• Competitiveness
• Govt. Reform
Fiscal Deficit
400,000
200,000
Fiscal
Balance
Fiscal
Finance
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 p
-200,000
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Key Policies in Demand Management Phase
• Refuse to increase tax (VAT to 10%) for fiscal balance but reduce some
specific tax rate to stimulate demand
• Restoring fiscal discipline – Fiscal Sustainability Plan
• Fiscal Finance Policy – due to excess liquidity in the financial market and
dysfunction of the banking sector
Choices: External borrowing vs. Excess liquidity
Choices: consumption spending vs. loan for investment
Village fund /People Bank/ SMEs Loan/SML Loan
• Stimulating the real estate sector (not allow the market price sink to the
bottom)
 TAMC House for civil services, Reduction of transfer fee of real estate
• Expanding export bases via FTA
Before Crisis
Excessive
K- flows
C/A
Deficits
After Crisis
less
C/A
K-flows Surplus
optimum C/A
K-flows balance
Invest in bubble business– instability
Economic
Crisis
Less investment / Excess capacity
Unsustainable
Uncompetitive
Way forward
Value Creation
Selective activities
Economic
Capital
Innovation/KM
Infrastructure
Training and Education
Social
Capital
Sufficiency and
Sustainability
Full employment
No- underemployment
HR with quality
NR sustain
Economy sustain
• Fiscal Balance
• C/A balance
•GDP 5 %
• Inflation 3 %