The Structural Transformation of Thailand: The Role of Policy Distortion

Abstract

Thailand and the Republic of Korea were developing at a similar pace during the 1960s. However, the Republic of Korea’s economic development rapidly expanded from the 1970s onward, leaving Thailand lagging far behind. This paper investigates the labor productivity slowdown in Thailand using a nine-sector, structural transformation model setting with policy distortions. Our findings suggest that the economic underdevelopment of Thailand, when compared with the Republic of Korea, lies in a tendency toward relative labor productivity slowdowns resulting from both direct and indirect policy distortions in the agriculture sector. The agriculture sector has consistently been overlooked by the government in favor of the infant industrial sector for many decades. Moreover, as the agriculture sector accounts for a relatively considerable share of employment, the magnitude of the negative impact from policy distortions is amplified, inducing a delay in Thailand’s structural transformation.