A Study of Sources of Economic Growth in Thailand

全文

(1)國立高雄大學國際企業管理碩士學位學程碩士論文. A Study of Sources of Economic Growth in Thailand. 研究生：Siriprapha Jitanugoon 指導教授：Professor Po-Chih Lee, Ph.D. Professor Chian-Hsueng Chao, Ph.D.. 中華民國 2020 年 05 月.

(2) National University of Kaohsiung Approval for Final Examination/Defense of Master's Thesis This is to certify that:. AStudyofSourcesofEconomicGrowthinThailand by. .Siriprapha Jitanugoon M1073507. (Student's Name),. (Student's ID Number),. a candidate for the lnternational MBA degree.. Committee Names and Signatures. I. (Chair Committee). Signature of Program Director:. \/. ,,. ur-,r.( )ro" ). Date: of. t /L t >o)p. (month) (day). (year).

(3) Acknowledgement Firstly, I would like to express my sincere gratitude to my advisor and my mentor Professor Po-Chih Lee for the continuous support of my master study, my future study and related research, for his patience, motivation, and immense knowledge. His guidance helped me in all the time of research and writing of this thesis. I could not have imagined having a better advisor and mentor for my master study. Besides my advisor, I would like to thank the rest of my co-advisor and thesis committee: Professor Chian-Hsueng Chao, Professor Min-Hsin Huang and Professor Chien-Hsing Wu for their insightful comments and suggestion. My sincere thanks also go to Professor Yung- Kai Yang who provided me an opportunity to join study in National University of Kaohsiung. Professor Pei-Chi Huang who gave the good suggestion and made me better in presentation skilled. Professor David K. Wang who always give the kind help to me. Professor Shao-Hsun Keng who give the research method knowledge. Without they precious support it would not be possible to conduct study in this master’s degree. Finally, I must express my very profound gratitude to my family and to my life partner for providing me with unfailing support and continuous encouragement throughout my years of study and through the process of researching and writing this thesis. This accomplishment would not have been possible without them. Thank you.. Respectfully, Siriprapha Jitanugoon (辛珮華) May 2020. I.

(4) A Study of Sources of Economic Growth in Thailand Advisors: Professor Po-Chih Lee, Ph.D. Department of Asia-Pacific Industrial and Business Management National University of Kaohsiung Professor Chian-Hsueng Chao, Ph.D. Department of Information Management National University of Kaohsiung Student: Siriprapha Jitanugoon International Master of Business Administration National University of Kaohsiung ABSTRACT This study aimed at investigating the sources on economic growth in Thailand. Annual time series data for the period 2007-2018 collected from the Office of the National Economic and Social Development Council and World Bank's World Development Indicators 2018. The variables of the study were Gross Domestic Products as a measure of economic growth, expenditures, sectors, input and technological progress. The study employed a number of real gross domestic product (RGDP) will be used as a proxy for increasing the economy's ability to produce goods and services. The relations will be estimated with regression analysis. The multiple regression result shows that; all variables were statistically significant. The results for this test revealed strong support for the exports of goods and services, gross fixed capital formation, industry, agriculture, services for economic growth in Thailand. In general, the study reveals that policies promoting exports have been successful in accelerating growth. However, policies designed to attract more FDI should be accompanied by another package of policies to strengthen the absorptive capacity of the country so that the impacts of FDI are manifested in the country’s economic growth. In conclusion, labor productivity and technological changed are significantly related with economic growth in Thailand. This implies that the Government of Thailand should put policies improving resource management, increasing investments in R&D and innovation, particularly private sector investments. Keywords: Economic Growth, Labor Productivity, Technological Progress, Multiple Linear Regression, Thailand II.

(5) Table of Contents ACKNOWLEDGEMENT ………………………………...………………. I. ABSTRACT ……………………………………………………..………... II. TABLE OF CONTENTS …………………………………………………. III. LIST OF TABLES .…………………………………….…………………. V. LIST OF FIGURES .…………………………………………………….... VI. LIST OF ABBREVIATIONS …………………………………………….. VII. CHAPTERS 1.. 2.. 3.. PAGES. INTRODUCTION…………………………………………………. 1. I.. Background Information …………………………...……... 1. II.. Main purpose of the Study …………...………………….... 8. III.. Flow Chart ……………………………………………….... 9. IV.. Expansion of Flowchart………………………………….... 10. REVIEW OF LITERATURES ………………………………….... 11. I.. Classical Model of Economic Growth ……………………. 11. II.. Basic Neoclassical (Solow) Model ……………………….. 14. III.. Endogenous Growth Models ……………………………... 16. IV.. Policy Application of Growth Theory ……………………. 22. A. Human Capital and Education ....……………….. 22. B. Government Spending and Taxation ………….... 23. C. Trade Policy …….………………………………. 23. D. Financial Market .……………………………….. 24. RESEARCH METHOD ...……….……………………………….. 25. I.. Data ……………………………………….………………. 25. II.. Research Framework …………………………………….. 26. III.. Variables………………………………………………….. 27. III.

(6) IV. 4.. Methodology ………………………………………………. 29. MAJOR FINDINGS ………………………………………………. 31. I.. 5.. Sources of Thailand’s Economic Growth …………….…... 32. A. Expenditures ...……………………………….….. 33. B. Sectors ……………………………………….….. 38. C. Labor Productivity ………………………….….... 42. D. Technological Progress ...…….………………….. 44. CONCOULDING REMARKS …...……..………………………... 46. I.. Major Contributions ……….…………………….……….... 46. A. Expenditures ……….….……………………….... 46. B. Sectors …………….………………………….…. 47. C. Input ………………...………………………….... 48. D. Technological Changes …………….……………. 49. II.. Major Suggestions ……………………………………….... 50. III.. Limited of the Study ………………………………………. 54. IV.. Further Study ……………………………………………... 55. REFERENCES ……………………………………………………………. 56. CURRICULUM VITAE ………………………………………………….. 63. IV.

(7) List of Tables TABLES. PAGES. 1 A comparisons of real GDP growth rates for the selected Asian countries, 2009-2019 ……………………………………………………………….. 6. 2 Thailand’s Economic growth by expenditures: Annual Growth Rate (%).. 33. 3 Thailand’s Economic growth by expenditures at constant 2010 prices: Billion US Dollars …………………………………………….................. 34. 4 Sources of Thailand’s Economic growth by expenditures: Annual Growth Rate (%)………………………………………………………………….. 34. 5 Sources of Thailand’s Economic growth by expenditures: Regression Result.. 35. 6 Thailand’s Economic growth by sector: Annual Growth Rate (%) ……... 39. 7 Thailand’s Economic growth by sectors: Constant 2010 Billion US Dollar.. 39. 8 Sources of Thailand’s Economic growth by industry; Annual growth rate (%).. 39. 9 Sources of Thailand’s Economic growth by industry: Regression Result.. 40. 10 Sources of Thailand’s Economic growth by input …………………….. 42. 11 Sources of Thailand’s Economic growth by technological progress ….. 44. 12 Sources of Thailand’s Economic growth by technological progress: Regression Statistics ……………………………………….……………….... 45. V.

(8) List of Figures FIGURES. PAGES. 1 Administrative Division Thailand ………………………………………. 2. 2 Total population in Thailand ………………………………………......... 3. 3 Thailand’s GDP Growth ………………………………………………... 4. 4 Flow Chart of the Study ……………………………………………........ 9. 5 Research Framework ………………………………………………........ 26. 6 Growth Rate of GDP; Investment and Export (%) ……………………... 35. 7 Number of labor productivity and employed persons ………………….. 42. VI.

(9) List of Abbreviations. AEC. ASEAN Economic Community. APEC. Asia-Pacific Economic Cooperation. ASEAN. Association of Southeast Asian Nations. EEC. Eastern Economic Corridor. ESCAP. The United Nations Economic and Social Commission for Asia and the Pacific. FAO. The Food and Agriculture Organization. FDI. Foreign Direct Investment. GDP. Gross Domestic Product. ITC. Information Technology and Communications. NESDC. The National Economic and Social Development Council. OTOP. One Tambon (meaning sub-district) One Product. RGDP. Real Gross Domestic Product. SEZ. Special Economic Zones. SMEs. Small and Medium-Sized Enterprises. TFP. Total Factor Productivity. UNCTAD. The United Nations Conference on Trade and Development. VII.

(10) Chapter 1: Introduction. I.. Background Information. Thailand, “Land on Smiles,” This name called not only because who come to Thailand love its natural beauty and historical riches, but also because of the country’s friendly people and fascinating culture. Thailand is a tropical land of terrain are high mountains, a central plain, and an upland plateau with an area of 510,890 Km2 (197,256 sq. miles). The distance from north to south is 1650 kilometers and from east to west 780 kilometers at its widest point. Thailand is located in the middle of Southeast Asia. The following countries have a direct border with Thailand: Myanmar (Burma) is in the north and west of Thailand. A long stretch of the Mekong River divides Thailand from Laos in the north and east, the Mekong and the mountains of Dongrak form the border to Cambodia in the east and Malaysia in the south. Thailand consists of 77 provinces with Bangkok as the capital, commercial, industrial, educational and entertainment of the country.. 1.

(11) Figure 1.1: Administrative Division Thailand Source: Government of Thailand. The current population of Thailand is 69,747,628 as of Friday, March 12, 2020, based on the latest United Nations estimates. Thailand population is equivalent to 0.9% of the total world population. Thailand ranks number 20 in the list of countries (and dependencies) by population. The median age in Thailand is 38.3 years. The official language of Thailand is Thai, with over 90% of the population using the language daily in their home and work lives.. 2.

(12) Figure 1.2: Total population in Thailand Source: 2019 United Nations, DESA Population Division.. Thailand is governed by a constitutional monarchy. The King is the Chief of State and the Monarchy is hereditary. Traditionally, he has little direct power, but benefits from enormous popular respect and moral authority, which has been used on occasion to resolve political crisis and ensure national stability. The Prime Minister is the Head of Government and holds all the executive powers including implementation of the law in the country and running the day-to-day affairs. Thailand is a member of the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). Thailand has a mixed economic system in which there is a variety of private freedom, combined with centralized economic planning and government regulation. The Gross Domestic Product (GDP) in Thailand was US$ 505 Billion and GDP per Capita was US$ 7,607 in 2018, the 8th. 3.

(13) largest economy of Asia. GDP per capital in Thailand increased from US$ 101 in 1960 to US$ 7,607 in 2018, implying a remarkable annual growth rate of 7.7 percent.. Figure 1.3: Thailand’s GDP Growth Source: Thailand Business News. The favorable growth outlook for the large economies in the Association of Southeast Asian Nations (ASEAN) is underpinned by robust domestic demand conditions, amid improving external demand and a modest recovery in commodity prices. In the Philippines, growth is projected to gain further traction, rising from 6.7 per cent in 2017 to 6.9 per cent in 2018 and 2019. Growth in Malaysia is projected to remain relatively steady at 4.9 per cent in 2018 and 5.0 per cent in 2019. The Republic of Korea is projected to grow at a sustained pace of 2.8 per cent in 2018 and 2019, following an estimated growth of 3.1 per cent in 2017. In Mainland China, growth is. 4.

(14) expected to remain solid, underpinned by favorable domestic demand and accommodative fiscal measures. Amid ongoing economic rebalancing efforts, growth will moderate at a gradual pace from 6.8 per cent in 2017 to 6.5 per cent in 2018 and 6.3 per cent in 2019. In 2017. Growth in Taiwan (R.O.C.) picked up to 2.2 per cent in 2017 and is projected to strengthen further to 2.4 per cent in 2018. In 2017, the surge in electronics and machinery exports generated positive spillovers to domestic demand, particularly in private investment. Meanwhile, growth in Singapore accelerated from 2.0 per cent in 2016 to 3.0 per cent in 2017, as the strong expansion in exports boosted activity in the manufacturing and logistics sectors. Private investment however, remained sluggish, while consumer spending continued to be weighed down by weak job creation, slower wage growth and declining house prices. The outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms. Hence, GDP growth is projected to accelerate from 6.7 per cent in 2017 to 7.2 per cent in 2018 and 7.4 per cent in 2019. In Indonesia, the growth outlook remains stable, against a backdrop of steady growth in private consumption and public expenditure. Growth is projected to improve slightly from an estimated 5.2 per cent in 2017 to 5.3 per cent in 2018. Economic growth in Japan accelerated to unexpectedly high levels in 2017, with GDP growth reaching an estimated 1.7 per cent. The robust economic growth is prompted by the continuously accommodative macroeconomic policy stance and is led by a rapid expansion of domestic demand.. 5.

(15) Table 1.1: A comparisons of real GDP growth rates for the selected Asian countries, 2009-2019 Rep.. Rep. Mainland. Year. of. Indonesia. India. Japan. of. Malaysia. Philippines. Singapore. Thailand. China China. Korea. 2009. -1.6. 4.6. 8.5. -5.4. 0.7. 9.4. -1.5. 1.1. -0.6. -0.7. 2010. 10.6. 6.2. 10.3. 4.2. 6.5. 10.6. 7.4. 7.6. 15.2. 7.5. 2011. 3.8. 6.2. 6.6. -0.1. 3.7. 9.5. 5.3. 3.7. 6.2. 0.8. 2012. 2.1. 6.0. 5.6. 1.5. 2.3. 7.9. 5.5. 6.7. 3.9. 7.2. 2013. 2.2. 5.6. 6.6. 2.0. 2.9. 7.8. 4.7. 7.1. 5.0. 2.7. 2014. 4.0. 5.0. 7.2. 0.3. 3.3. 7.3. 6.0. 6.2. 3.6. 0.9. 2015. 0.7. 4.9. 7.6. 1.1. 2.8. 6.9. 5.0. 6.1. 1.9. 2.9. 2016. 1.5. 5.0. 7.1. 1.0. 2.8. 6.7. 4.2. 6.9. 2.0. 3.2. 2.2. 5.2. 6.7. 1.7. 3.0. 6.8. 5.4. 6.7. 3.0. 3.5. 2.4. 5.3. 7.2. 1.2. 2.8. 6.5. 4.9. 6.9. 2.7. 3.4. 2.5. 5.4. 7.4. 1.0. 2.8. 6.3. 5.0. 6.9. 2.7. 3.3. 2017 (b) 2018 (c) 2019 (c). Source: UN/DESA, based on data of the United Nations Statistics Division Individual national sources. Note: Regional aggregates calculated at 2010 prices and exchange rates. (b) Partly estimated. (c) Baseline scenario forecasts based in part on Project LINK and UN/DESA World Economic Forecasting Model. Nowadays, the importance of economic growth must be mentioned, especially in such developing countries as Thailand. For completed understanding of develop economic growth models and to-warding the determinants of economic success will be need to answering questions about sources of economic growth for sustainable growth and assuring the subsistence needs of population. To this case of interest in those of. 6.

(16) understanding, this research offers a contribution to the empirical growth literatures that is testing for the sources of economics growth in Thailand. Many sources of economic growth is essential for achieving good economic, social, and even political development. Economic growth is the process of increasing the economy's ability to produce goods and services, can be achieved by increasing the quantity or quality of resources. Real Gross Domestic Product enables economic policymakers and government agencies to assess whether the economy is weakening or progressing if it needs improvements or restrictions, and policies are needed to address economic issues. There are different concepts of economic growth and ways of measuring it, but the core definition is in terms of growth in the long run productive capacity of the economy, typically measured by growth in Real Gross Domestic Product (RGDP). Accordingly, the main objective of this study is to investigate the sources of economic growth have an effect on Real Gross Domestic Product RGDP in Thailand. So far, the majority of the studies on sources of economic growth of Thailand are numerous 1. Real private consumption expenditures (C) 2. Real government consumption expenditure (G) 3. Real private domestic investment (I) 4. Real net exports(X-M). These sources of economic growth are helpful when considered together and with which one of these sources will be effect on Real Gross Domestic Product (RGDP) in Thailand. In this study, sources of growth from real gross domestic product are calculated for Thailand between 2007 and 2018. The remainder of the study is organized as follows. First, a review of the literature on the determinants of sources of growth and growth model. The methodology is elaborated in the next section. Then, estimating. 7.

(17) results are presented. The section concludes the study with a summary of main findings as well as their implications and recommendations for further study.. II.. Main purpose of the study The objectives of this study are: A. To study the Real Gross Domestic Product (RGDP) in Thailand. B. To analyze the sources of economic growth that affecting Real Gross Domestic Product in Thailand. C. To offer policy recommendations to GDP growth in Thailand.. 8.

(18) III.. Flow Chart. Introduction Background and Objectives. Review of Literatures, Papers of Studied, Analysis in Journals. Research Method, Case Study, Historical Method, Quantitative Analysis. Major Findings. Concluding Remarks. Figure 1.4 Flow Chart of the Study.. 9.

(19) IV.. Expansion of Flow Chart of the Study A. Introduction Background and object In this part the author provides background information on the topic putting it into context, confirm the main focus of the study, explain why it add value to area of interest and specify the key objectives. B. Reviews of Literatures, Paper of Studied, Analysis in Journals A critical review of literature that relates to chosen study topic. Also, need to identify gap in the literature study aims to address. C. Research Method, Case Study, Historical Method, Quantitative Analysis Focuses on the research method used within this study. In this study used the quantitative analysis. This method uses for seeking to count, categorize, measure and identify patterns in data. To collect quantitative data from the Thai government and international organization. D. Majors Findings Used to secondary data on main finding and analysis relate to the study question. E. Concluding Remarks Used to confirm the answer to the main study question, reflect on the study process and offer policy recommendations on future study.. 10.

(20) Chapter 2: Review of Literatures. This chapter review the theories relating to economic growth, the determinants of growth and the effect of sources of economic growth. The chapter begin with a review of classical model of economic growth, basic neoclassical, endogenous growth theory and policy application of growth theory. The determinants of growth, impact of source of economic growth.. I.. Classical Model of Economic Growth. Adam Smith and other classical economists had important contribution on the economic growth theory. Barro and Xavier I. Sala-i-Martin (2003) state that classical economists, such as Adam Smith (1776), David Ricardo (1817), and Thomas Malthus (1798), and, much later, Frank Ramsey (1928), Allyn Young (1928), Frank Knight (1944), and Joseph Schumpeter (1934) provided many of the basic ingredients that appear in modern theories of economic growth. These ideas include the basic approaches of competitive behavior and equilibrium dynamics, the role of diminishing returns and its relation to the accumulation of physical and human capital, the interplay between per capita income and the growth rate of population, the effects of technological progress in the forms of increased specialization of labour and discoveries of new goods and methods of production, and the role of monopoly power as an incentive for technological advance. Rostow (1992) states that according to Adam Smith (1776), the main factors affecting the engine of economic growth are population growth, capital growth, the. 11.

(21) division of labor (technological progress) and institutional framework of the economy (competitive-free traded market economy). Smith also stated the importance of stable legal framework in which invisible hand of the market could function, and open trading system (Viner (1927), Hutchison, (1976), Spengler, (1959a, 1959b) Rothschild (1992). The Theory of Moral Sentiments begins with the following assertion: How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Smith (1759) stated that every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so. Smith (1776) stated that … it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest ... Smith (1776) also stated that The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often in cumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security. Smith (1776) stated that “... But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest. 12.

(22) value; every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.” Technological progress could also increase growth overall. Smith's famous thesis that the division of labor (specialization) improves growth was a fundamental argument. Smith (1776) stated that “ ...this great increase of the quantity of work which, in consequence of the division of labor, the same number of people are capable of performing, is owing to three different circumstances; first to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of machines which facilitate and abridge labor, and enable one man to do the work of many...” Smith also saw improvements in machinery and international trade as engines of growth as they facilitated further specialization. Smith also believed that "division of labor is limited by the extent of the market" - thus positing an economies of scale argument. As division of labor increases output (increases "the. 13.

(23) extent of the market") it then induces the possibility of further division and labor and thus further growth. Thus, Smith argued, growth was self-reinforcing as it exhibited increasing returns to scale. Output growth (gY) was driven by population growth (gL), investment (gK) and land growth (gN) and increases in overall productivity (gP). Output growth model is (Rostow, 1992; The History of Economic Thought, 2009): gY = f (gL, gK, gN, gP). Smith’s economic growth model can be formalized as follows (Adelman, 1964; Rostow, 1992; The History of Economic Thought, 2009): Y= F (K, L, N) Where K: Capital L: Labor N: Land. II.. Basic Neoclassical (Solow) Model The workhorse model of traditional neoclassical growth theory is that due to. Slow (1956). The major innovation introduced by Solow was to allow for factor substitutability so that stable equilibrium growth could be obtained. This model is consistent with a number of stylized facts related to economic growth such as the relative constancy over time of the capital-output ratio and factor income shares. The major difficulty with this model is that growth in per capital output converges to zero in the steady state. In order to have steady state growth exogenous technological change. 14.

(24) was introduced. A problem from the standpoint of policymaking in developing countries is that policies have no effect on growth in the steady state of the Solow model. For example, there is evidence of a positive correlation across countries between investment rates and growth, but in the Solow model this world affects the long-run level of output but not growth rates. The neoclassical growth theory in the Solowtradition is based on the following production function: Y(t) = F[K(t),A(t),L(t)] where Y is output, K is physical capital, A is an index of total factor productivity, and L is the labor force; there are constant returns to scale and decreasing returns to capital. With these assumptions, income growth can come from the increased efficiency of productive inputs, i.e. an increase in A, or the augmentation of such inputs, i.e. an increase in K and/or L. Positive growth rates can be sustained if and only if the decreasing returns to the accumulation of capital are offset by population growth, or if the marginal productivity of capital is constantly shifted upwards by technical progress. In balanced growth equilibrium - i.e. given a constant savings rate - there will be no depreciation of the capital stock and, assuming A (t) as constant, output and capital will grow at the rate of population growth. Differences in the time path of the scale factor A (t) explain countries' different growth experiences. This exogenous source of growth has been interpreted as technical progress. Policy has little scope in affecting long-run growth in this setting. Investment and savings behavior impact on the level of per capita income but has no effect on the long-run growth rate. Policies can raise the long-term growth rate by speeding up technical innovation or knowledge accumulation, but the theory itself suggests no mechanisms whereby this could be achieved. There are neither. 15.

(25) invention costs - costs associated with the development of new technologies - nor adoption costs - costs associated with making use of new technologies. A further problem for the Solow model, discussed by Lucas (1990), is that it predicts resource flows which are not observed. The basic model suggests that the returns to capital must be many times higher in the developing than in the developed countries. This would imply that most new investment would occur in the developing countries, but this does not occur. Differential policies and political risk may dampen this effect, but the implied return differentials are probably too great to be explained by these factors alone. Even if it could be shown that returns to capital were roughly equal the Solow model suggests equalization of wages would also result (wish similar technology equalized returns require that there is a similar amount of capital per worker which implies similar wages) which contradicts observed wage differentials and flows of workers. The understanding of international capital flows and immigration are also important in development policy making.. III.. Endogenous Growth Models The new growth theory drops two central assumptions of the Solow model, (i). that technological change is exogenous, and (ii) that the same technological opportunities are available in all countries. In addition, the assumption of decreasing returns to a narrow concept of capital (including only physical capital) is replaced by the assumption of constant returns to a broad measure of capital (including also human capital and infrastructure). New growth models treat technology and knowledge as economic goods in an attempt to understand the determinants of long-term growth based on learning-by-doing or investment in human capital and new technologies.. 16.

(26) Contrary to the standard neoclassical models and that by Arrow (1962), there are invention costs in the creation of new technology, and there are adoption costs associated in particular with creating the human capital required to use a new technology. Adoption costs have a direct component in the form of investment outlays for schooling, on-the-job training, etc., as well as an indirect component, such as in the form of foregone output. Endogenous growth models can be distinguished according to whether they emphasize invention costs or adoption costs. New growth models differ as to what mechanism is employed to end organize the impact of technical progress on growth. The mechanisms in early models (Romer, 1986; Lucas, 1988) are dynamic externalities at the aggregate level, i.e. technology is endogenously provided as a side-effect of private investment decisions. Romer (1986) assumes that the stock of knowledge of a firm increases in proportion to the firm's expenditure on research and development, while spillovers from these private investments increase public knowledge. In the absence of an effective patent market, the stock of knowledge is like a public good. Even though Romer's model is similar to Arrow's, technological change is to end organize, since in his model long-term growth is driven primarily by the creation of new knowledge by forward-looking, profitmaximizing, private agents. The investment which creates new knowledge displays diminishing returns. But, given the knowledge spillovers due, for example, to the inadequacy of patent protection, the production of goods from new knowledge exhibits increasing returns. Since new knowledge is produced from investment with diminishing returns, each profit-maximizing private agent who invests in knowledge creation - and hence incurs invention costs - faces an optimal upper limit to his investment. Thus,. 17.

(27) technical change should be responsive, endogenously, to policy, such as tax and fiscal incentives. The model by Lucas (1988) is also similar to Arrow's (1962). However, the spillover effects which increase the level of technology stem from investment in human capital rather than in physical capital. The model focuses on general skills and in particular those which cannot be separated from the worker who has acquired them. Knowledge grows with the time spent on education and the efficiency with which this time is translated into human capital. This efficiency is associated with different factors depending on whether education is understood as schooling or as learning-by doing. Regarding schooling, efficiency increases with the quality of schooling which, in turn, improves with increased general knowledge. Here, the mechanism of raising long-term growth is learning or doing rather than learning-by-doing. Differences in long-term growth are the result of different rates of human capital accumulation, stemming from differences in countries' time allocation decisions. Regarding learning-by-doing, efficiency is associated with the type of process workers are engaged in: "one might think of some activities as carrying with them a high rate of skill acquisition and others, routine or traditional ones, as associated with a low rate. If so, the mix of goods a society produces will affect its overall rate of human capital accumulation and growth" (Lucas, 1993). A country's initial comparative advantage determines the goods it produces, and hence its rate of human capital accumulation and growth. Neo-Schumpeterian growth models employ temporary monopoly profits, which motivate the discovery of new technology, as the mechanism to end organize the impact of technological progress on growth. This branch of new growth models introduces conditions of imperfect competition at the micro-level of production, emphasizing the. 18.

(28) importance of temporary monopoly power as a motivating force for the intentional investment of resources by profit-seeking firms or entrepreneurs in the innovative process. In these models, growth depends on the incentives to invest in improving technology. It is also important to note that the appropriability of (new) knowledge is related to lead times over rival inventors and imitators rather than to effective patent protection. The models are based on the assumption that there are invention but no adoption costs. The invention costs are fixed-cost expenditures which occur, for example, through the need to conduct research and development for the invention of new designs; the inventors sell these designs to producers of goods that are new (Romer, 1990, and Grossman and Helpman, 1991) or of superior quality (Grossman and Helpman, 1991). The competitive equilibrium solution of the neoclassical model cannot be sustained where such fixed costs are important because, if this is the case, decentralized market valuations of the economic efficiency of an investment project diverge from valuations at the aggregate level. As a result, no such investment will take place if at least part of the expenditure cannot be recovered through monopoly profits. The approach focusing on invention emphasizes ideas which can be used by many workers once they are created, i.e. disembodied human capital, through a research and development effort by a small subset of educated workers. Policies that raise the incentive of this group of workers to innovate consciously raises the question of longterm growth. Romer (1990) explains that the basic difference between ordinary tangible goods, such as capital and knowledge, is that the latter is a nontrivial and partially nonexcludable good. The feature of non-rivalry means that knowledge can be used in more than one place at any one time, while the feature of non-excludability means that the creators or owners of knowledge can exclude others from making unauthorized use of. 19.

(29) it only with difficulty. Knowledge may be considered a partially non-excludable good because one type of knowledge, namely product-specific information, can be protected through patents, while more general technical information which may allow for subsequent inventions cannot be hidden from rival innovators and is much more difficult to appropriate. Technological spillovers associated with the latter feature maintain investment incentives endogenously and allow successive inventions to use fewer resources than their predecessors because, contrary to inputs of capital and labor, it is not necessary to replicate non-rival inputs. The resulting fall in the real cost of invention counteracts the falling marginal product of investment. "In short, the process of knowledge accumulation generates endogenously the productivity gains that sustain growth in the long run" (Grossman and Helpman, 1991). A third class of new growth models distinguishes human capital from technology as well as different types of each. They include both invention and adoption costs but focus on the latter. Young (1993) and similarly Lucas (1993) criticize the discussed models of invention and models of learning as focusing on two extreme cases of the process of accumulation of human capital. In particular, Young (1993) points to the unrealistic assumption in the learning approach "that the potential productivity gains from learning are essentially unbounded", since making this assumption does not allow "explaining the recurring pattern of technological improvement and stagnation apparent in pre-modern history". This approach also implies the assumption that, contrary to the invention approach, new technologies are not considered to attain their full production potential at the moment of their invention but that they initially are broadly inferior to the older technologies they seek to replace. This means that these models add a complementarity element of innovation to the Schumpeterian emphasis on substitution.. 20.

(30) Young concentrates on the interaction of factors emphasized in the learning and invention approach, starting from the basic assumption that the potential of "learning in the production of any particular good, using any particular process, is in fact finite and bounded. When a new technical process is first invented, rapid learning occurs as, by virtue of experience, the productive potential of that process is explored. After some time, however, the inherent (physical) limit on the productivity of technology will be approached and learning will slow and, perhaps, ultimately stop. In the absence of the introduction of new technical processes, it is unlikely that learning-by-doing can be sustained" (Young, 1993). This means that Young emphasizes the existence of a technology ladder in the production of goods ordered by increasing technical sophistication, with the result that countries have to combine efforts at learning-bydoing and innovation in order to fully exhaust their potential in human capital accumulation. The consideration that, in the absence of further invention, learning is bounded has important implications for diversification. If the potential for learning-induced productivity improvements in each good is finite and bounded, then the potential maximum accumulation of knowledge in an economy is determined by the number and variety of activities as well as by the level of technology mastered by the labor force, compared to that required to exhaust fully the learning potential incorporated in the production of a given set of goods. Accordingly, if an economy continues to produce the same narrow range of goods, its learning-induced productivity improvements are likely to peter out. It also means that neither the presence of state-of-the-art technology nor a highly skilled labor force alone is sufficient for the full exhaustion of an. 21.

(31) economy's learning potential, but that the introduction of new technologies and the commensurate up-grading of skill-related knowledge must go hand in hand.. IV.. Policy Applications of Growth Theory The above model provides the basic framework for considering endogenous. growth in a general equilibrium framework. However, given the broad nature of the results there is still little information for policymakers. A number of models have been developed along the above lines to deal with more specific policy and empirical issues. Many of these issues have also been of concern to developing countries.. A. Human Capital and Education Development economists have long been concerned with human capital formation. Endogenous growth model, such as Lucas (1988), allow for significant effects of human capital accumulation on economic growth. Lucas (1988) presents a growth model in which output is generated via a production function of the form 𝑌 = 𝐴𝐾 ! (𝑙ℎ𝐿)"#! where Y, A, and K are as usually defined and 0 < α < 1, where L is defined as the proportion of total labor time spent working, and h is what Lucas calls the stock of ‘human capital.’ The production function can be rewritten in per-capita terms as 𝑌 = 𝐴𝐾 ! (𝑙ℎ𝐿)"#! which is a constant returns to scale production function in K and 𝑙ℎ. Capital accumulation proceeds via the usual differential equation, 𝑘 = 𝑦 − 𝑐(𝜗 + 𝛿)𝑘. 22.

(32) while ℎ accumulates according to ℎ̇ = ∅ℎ(1 − 𝑒) ℎ̇ = ∅(1 − 𝑒) ℎ. B. Government Spending and Taxation Development economists have also been interested in the effects of government spending, taxation, and related distortions in developing countries. Romer (1986) is that capital taxation (or subsidization) may have significant growth effects in the endogenous growth models whereas it would only have level effects in the Slow model. It would be important for policymakers to understand the relative importance of these effects for long-term growth. Also, factors such as political instability and property rights may have effect similar to capital taxation by increasing the uncertainty associated with investment decisions.. C. Trade Policy Given the success stories of the East Asian countries, development economist has been interested in the links between foreign trade and economic growth. Many developing countries have significant trade distortions through tariff of quota barriers which generate inefficient allocation of investment and rent-seeking behavior. Because trade distortions would have only level effects in the Solow model the discussion has moved to the relationship between trade policy and productivity growth. A number of recent studies explore these issues within models of endogenous growth. Romer (1990a) notes a general implication of endogenous growth theories is that through. 23.

(33) increasing the scale of spillovers or available technologies openness trade should increase growth. Further research a suggested modification to this result. It appears that even in very aggregative models that few strong conclusions can be drawn concerning the relationship between growth and trade policy. A major difficulty with these models is that it is hard explain difference in growth rates among countries when they are open to trade. One could explain differences between countries open to race and those completely closed but this does not seem satisfying as a complete theory of growth differentials between countries.. D. Financial Markets Development economists have also been concerned about the role of financial factors in development. It has been argued by McKinnon (1973) and Shaw (1973) that financial repression (particularly depressed interest rates) slow growth through retarding savings and promoting inefficient investment allocation. Recent studies have addressed the issue of financial markets and growth. Rather than focusing on the relationship between savings and interest rates (which is theoretically ambiguous) they focus on firm behavior in a risky environment with financially constraints.. 24.

(34) Chapter 3: Research Method. I.. Data To determine the sources of economic growth affecting the real gross domestic. product (RGDP) in Thailand, this study is based on secondary data in annual time-series and data covering the period 2007 to 2018. The major data source for macroeconomic variables in this study from the Office of the National Economic and Social Development Council and World Bank's World Development Indicators 2018. An effort has been made to fill missing values by using alternative sources like the Bank of Thailand.. 25.

(35) II.. Research Framework Sources of economic growth are relevant to expenditures, industries sectors,. labor productivity, and technological progress. The research framework is summarized as follows:. Input: 1. Employment 2. Productivity (Independent Variables) Expenditures: 1.Private Consumption: C 2.Government Expenditures: G 3.Gross Fixes Capital Formation: I 4.Net Export: (X-M) (Independent Variables). Sectors: 1. Agriculture 2. Industry 3. Services (Independent Variables) 4.. Economic Growth in Thailand (GDP) (Dependent Variable). Technological Progress: 1. Capital: K 2. Labor: L (Independent Variables). Figure 3.1: Research Framework.. 26. Policy Recommendations.

(36) III.. Variables As explained in the previous section, a number of real gross domestic product. (RGDP) was used as a proxy for increasing the economy's ability to produce goods and services. Sources of economic growth to explain the real gross domestic product is first defined by expenditure. Sources of GDP growth by expenditures, we can calculate by 𝐺𝐷𝑃 = 𝐶 + 𝐺 + 𝐼 + 𝑋 − 𝑀 ∆𝐺𝐷𝑃 = ∆𝐶 + ∆𝐼 + ∆𝐺 + ∆𝑋 − ∆𝑀 ∆𝐺𝐷𝑃 ∆𝐶 ∆𝐼 ∆𝐺 ∆𝑋 ∆𝑀 = + + + − 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 %∆𝐺𝐷𝑃 =. ∆𝐶 𝐶 ∆𝐼 𝐼 ∆𝐺 𝐺 ∆𝑋 𝑋 ∆𝑀 𝑀 ∙ + ∙ + ∙ + ∙ − ∙ 𝐶 𝐺𝐷𝑃 𝐼 𝐺𝐷𝑃 𝐺 𝐺𝐷𝑃 𝑋 𝐺𝐷𝑃 𝑀 𝐺𝐷𝑃. %∆𝐺𝐷𝑃 = %∆𝐶 ∙. 𝐶 𝐼 𝐺 𝑋 𝑀 + %∆𝐼 ∙ + %∆𝐺 ∙ + %∆𝑋 ∙ − %∆𝑀 ∙ 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃. where, C is private consumptions G is government expenditures I is gross fixed capital formation X-M is net exports; calculate as total exports minus total imports All these activities contribute to the GDP of a country.. 27.

(37) Continuing of another sector of GDP. Sources of GDP growth from industry sector. Sources of GDP Growth by industry we can calculate from 𝐺𝐷𝑃 = 𝐴 + 𝐼 + 𝑆 . ∆𝐺𝐷𝑃 ∆𝐴 ∆𝐼 ∆𝑆 = + + 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃. %∆𝐺𝐷𝑃 = . ∆𝐴 𝐴 ∆𝐼 𝐼 ∆𝑆 𝑆 ∙ + ∙ + ∙ 𝐴 𝐺𝐷𝑃 𝐼 𝐺𝐷𝑃 𝑆 𝐺𝐷𝑃 𝐴 𝐼 𝑆 + %∆𝐼 ∙ + %∆𝑆 ∙ 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃. %∆𝐺𝐷𝑃 = %∆𝐴 ∙ . Where, A is agriculture I is Industry S is Services. Continuing of other sources of GDP. Sources of GDP growth from input. A. Increase in employment B. Increase in labor productivity Sources of GDP Growth from input we can calculate from 𝐺𝐷𝑃 = 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 × 𝐿𝑎𝑏𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝐺𝐷𝑃 = 𝐿 × 𝐿𝑎𝑏𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦. 28.

(38) If we want to calculate technologies progress, we can use: 𝑦 = 𝐴 ∙ 𝑒 $% ∙ 𝐾 ! ∙ 𝐿& log 𝑦 = log 𝐴 + 𝑔𝑡 + 𝛼 log 𝐾 + 𝛽 log 𝐿 log 𝑦 = log 𝐴 + 𝑔𝑡 + 0.25 log 𝐾 + 0.75 log 𝐿 log 𝑦 − (0.25 log 𝑘 + 0.75 log 𝐿) = log 𝐴 + 𝑔𝑡 where, K is Physical capital L is Labor forces. The above relation will be estimate with regression analysis. The coefficients of the explanatory variables are expected to take the following signs: the direction of the relationship between sources of economic growth and real gross domestic product (RGDP).. IV.. Methodology This research is study in a source of economic growth that affecting real gross. domestic product in Thailand by use multiple regression analysis. At the model formation stage, the relationship between the dependent variable and the independent variable must be explained by logic. Based on logic used, it is predicted that the relationship between the independent variables and the dependent variables is related. This study has chosen to use research data as multiple regression analysis which an analysis of relationships between more than one independent variable and one dependent. In general, the multiple regression equation of Y on X1, X2, …, Xk is given by: 𝑌' = 𝛽( + 𝛽" 𝑋"' + 𝛽) 𝑋)' +. . . +𝛽* 𝑋*' + 𝜖', 𝑖 = 1, . . , 𝑛. 29.

(39) where, Y is the expected value of Y for a given X value β0 is the Y intercept of the regression line β1 is the parameter associated with X1 (measures the change in y with respect to x1, holding other factors fixed) and so on… ε is a random variable called the error term.. By show the result of analysis in 3 parts as following: A. The appropriateness of the multiple regression model as a whole can be tested by the F-test in the ANOVA table. A significant F indicates a linear relationship between Y and at least one of the X’s. B. Once a multiple regression equation has been constructed, one can check how good it is (in terms of predictive ability) by examining the coefficient of determination (𝑅2! ). 𝑅2! always lies between 0 and 1. C. A related question is whether the independent variables individually influence the. dependent. variable. significantly.. Statistically,. it. is. equivalent. to testing the null hypothesis that the relevant regression coefficient is zero. This can be done using t-test. If the t-test of a regression coefficient is significant,. it. indicates. that. the. variable. in. question. influences. Y significantly while controlling for other independent explanatory variables.. 30.

(40) Chapter 4: Major Findings. This study examines the effects of sources on economic growth in Thailand. The construction of the study is discussed, including the later chapters for concluding remarks and references. As part of the methodology, the previous chapter argued for the selection of estimation equations and preparation of the variables for the model. This chapter has the estimation results of the specified equations. The supply side model estimation is presented as two sections: public investment finance and national production function. Economic growths by expenditures comprise equations relating to the sources of Thailand’s revenue. Since Thailand revenue is come from expenditures, the estimates primarily focus on these sources. Expenditures is represented by a series of estimable equations, while other sources such as private consumption, government consumption, gross fixed capital formation and net export of goods & service are represented with identity equations. The three broad categories including the agricultural sector, the manufacturing sector and the service sector an estimation of economic growth in Thailand. The agricultural sector is extraction of raw materials-mining, fishing and agriculture. The manufacturing concerned with producing finished goods, e.g. factories making toys, car, food, and clothes. The service sector concerned with offering intangible goods and service to consumers. This includes retail, tourism, banking, entertainment and I.T. services.. 31.

(41) Third, growth accounting measures the contribution of increase in labor inputs estimate and identity equation were calculating from labor productivity. Thus, a country’s growth can be broken down by accounting for what percentage of economic growth comes from labor. Finally, estimated and identity equations were combined by input of technological changes. The technological progress is the main driver of long-run economic growth. Because of other input factor constant, the additional output obtained when adding one extra unit input of capital or labor will eventually decline, according to the law of diminishing return. Therefore, the driver of long-run growth has to be technological progress. The four sector values beyond the analysis and thus provides an economic policy model. A discussion of the nature and the outcomes of this research follow.. I.. Sources of Thailand’s Economic Growth As noted, the research methodology in sources of Thailand’s economic growth. comprises four parts: Thailand’s expenditures, industrial sector, labor productivity and the technological progress. Real GDP is real gross domestic product (2010 =100). Real GDP for Thailand are converted into constant U.S. dollars. Dollar figures for real GDP are converted from domestic currencies (Thai Baht) using single year official exchange rates. Real GDP is the dependent variable in this study.. 32.

(42) A. Expenditures The first step of empirical analysis is to test the stationary of growth and its determinants. Estimation procedures were applied to gross domestic product rate using model equations derived in chapter 3. Therefore, its annual changes measure economic growth. The determinants of growth investigated in this study include private consumption, government consumption, gross fixed capital formation, export of goods & service and import of goods & service. From equation chapter 3, the gross domestic product can be structured as:. %∆𝐺𝐷𝑃 = %∆𝐶 ∙. 𝐶 𝐼 𝐺 𝑋 𝑀 + %∆𝐼 ∙ + %∆𝐺 ∙ + %∆𝑋 ∙ − %∆𝑀 ∙ 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃. The results showed that all expenditures were trended series. Following visual inspection, the time-series properties of the variables were tested using private consumption, government consumption, gross fixed capital formation and net export of goods & services. The details of the results and the summarized results are presented.. Table 4.1: Thailand’s Economic growth by expenditures: Annual Growth Rate (%) Item. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. GDP. 5.40. 1.70. (0.70). 7.50. 0.80. 7.20. 2.70. 1.00. 3.10. 3.40. 3.90. 4.10. C. 1.20. 2.80. (3.28). 5.50. 1.80. 6.70. 2.03. 0.80. 2.32. 2.50. 3.20. 5.60. G. 8.90. 4.90. 4.00. 8.90. 3.70. 7.20. 2.50. 1.02. 1.08. 1.03. 1.50. 2.80. I. 1.80. 2.34. (10.87). 11.60. 4.90. 10.72. (0.10). (2.20). 4.36. 2.80. 1.90. 4.20. X. 8.90. 9.50. (12.14). 3.15. 9.50. 4.90. 3.70. 1.03. 1.57. 2.80. 6.80. 7.60. M. 4.20. 11.39. (20.77). 2.24. 12.40. 5.50. 1.70. (1.07). 0.00. (0.99). 5.20. 8.59. 33.

(43) Table 4.2: Thailand’s Economic growth by expenditures at constant 2010 prices: Billion US Dollars Item GDP C G I X M. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. 314. 319. 317. 341. 344. 369. 379. 383. 395. 408. 424. 442. 166. 170. 169. 178. 181. 193. 195. 197. 201. 207. 213. 223. 43. 45. 49. 54. 56. 60. 61. 63. 64. 66. 66. 67. 80. 82. 73. 82. 86. 95. 94. 92. 96. 99. 101. 104. 213. 226. 199. 227. 248. 260. 267. 268. 272. 280. 295. 308. 191. 213. 169. 207. 233. 246. 250. 237. 237. 235. 249. 271. Table 4.3: Sources of Thailand’s Economic growth by expenditures: Annual Growth Rate (%) Item. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. C. 0.63. 1.49. (1.74). 2.87. 0.94. 3.50. 1.04. 0.41. 1.18. 1.26. 1.61. 2.82. G. 1.22. 0.69. 0.64. 1.41. 0.60. 1.17. 0.40. 0.17. 0.17. 0.16. 0.23. 0.40. I. 0.46. 0.60. (2.50). 2.79. 1.23. 2.75. (0.02). (0.53). 1.06. 0.67. 0.45. 0.98. X. 6.04. 6.73. (7.62). 2.09. 6.84. 3.45. 2.61. 0.72. 1.08. 1.92. 4.73. 5.29. M. 2.50. 7.60. (11.07). 1.35. 8.39. 3.66. 1.12. (0.66). 0.00. 0.57. 3.05. 5.26. SUM. 5.81. 1.91. (0.18). 7.81. 1.22. 7.21. 2.91. 1.43. 3.49. 3.44. 3.97. 4.23. GDP. 5.40. 1.70. (0.70). 7.50. 0.80. 7.20. 2.70. 1.00. 3.10. 3.40. 3.90. 4.10. Statistical Discrepancy. 0.41. 0.21. 0.52. 0.31. 0.42. 0.01. 0.21. 0.43. 0.39. 0.04. 0.07. 0.13. 34.

(44) Table 4.4: Sources of Thailand’s Economic growth by expenditures: Regression Result Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations Predictor Constant Private Consumption (C) Government Expenditures (G) Gross Fixed Capital Formation (I) Net Export (X-M). 0.7682 0.7681 0.6357 1.5128 12. Coefficient 0.454 0.1387. Standard Error 1.1961 0.1405. T-Statistic 0.3795 0.9869. P-Value 0.7155 0.3565. 0.133. 0.1381. 0.9626. 0.3678. 0.6399. 0.4537. 1.4105. 0.2013. 0.2259. 0.1739. 1.2991. 0.2351. Growth Rate of GDP; Investment and Export (%) 2007 to 2018 15 10 5. 5.4. 0 1. 7.5 1.7 2. 7.2 0.8. 3-0.7. 4. 5. 2.7 6. 7. 1 8. 3.1 9. 3.4 10. 3.9 11. 4.1 12. -5 -10 -15 GDP. Export. Gross fixed capital formation. Figure 4.1: Growth Rate of GDP; Investment and Export (%). Table 4.3, an analysis of the data for Thailand since 2007 indicates that the growth rate of private consumption has failed to keep up with that of economic activity. Despite the share of private consumption in GDP has been on a long-term declining. 35.

(45) path: from 53% in 2007 to 51% in 2018, Thailand private consumption still recorded an average annual growth rate of about 2.6%, which has provided a moderate impact on sources of real GDP growth in Thailand. Private consumption expanded at a slower pace is likely clear to income inequality in Thailand. The income gap between the highest income group and the lowest income group is shrinking gradually, from 25.10 times in 2007 to 19.29 times in 2018. The expenditure gap between the two groups has also contracted from 11.70 times in 2008 to 9.32 times in 2018. Meanwhile, the response of economic growth to government expenditure resulted in a stable time path which declined to zero because the proportion of the government expenditure to GDP has been lightly stable during the past ten years. Economic growth during the period 2007 to 2018 was main driven by the acceleration of exports of goods and services in Thailand. An annual growth rate of export was 3.9% for the period, which was the major source of real GDP growth of 3.3% registered from 2007 to 2018. The contribution of an investment has been fluctuated during period 2007 to 2018, its impact was moderate. Table 4.4 displays the results of the multiple regression analysis to determine the relationship between real GDP (Y) and private consumption (X1), government consumption (X2), gross fix capital formation (X3) and net export (X4) in Thailand. The coefficient of determination (𝑅]) ) shows that a 76% variation in real GDP can be explained by these four independent variables. There are many sub expenditures in private consumption, government consumption, gross fix capital formation and net export, some of them bring high value-added to real GDP in Thailand. Therefore, the coefficient of determination (𝑅]) ) recorded such a high value (76%). The remaining. 36.

(46) 24% of the variation is associated with other factors not captured in this model, including technological progress. The interpretation of the coefficient of X3 is, if the gross fixed capital formation increases by 1 dollar, real GDP is expected to increase by 0.64 dollar. In addition, if net export (X4) increases by 1 dollar, real GDP is expected to rise by 0.23 dollar. The tratio for these two variables all are greater than 1, indicating that they are statistically significant. Figure 4.1 display the result that gross fixed capital formation and net export have major impacts on real GDP in Thailand. According to the results, gross fixed capital formation is the highest contributor to real GDP in Thailand. This is because gross fixed capital formation includes land improvements (fences, ditches, drains and so on); plant, machinery, and equipment purchase; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. According to the 1993 SNA, net acquisitions of valuables are also considered capital formation. In other words, these factors enhance the contribution of the gross fixed capital formation to economic growth in Thailand. Net export has been one of the key ingredients behind the economic growth of Thailand over the past several decades. Moreover, in 2018 Thailand is the 21st largest exporter in the world. The top exports of Thailand are office machine parts, integrated circuits, delivery trucks, cars and broadcasting equipment, using the 1992 revision of the HS (Harmonized System) classification.. 37.

(47) B. Sectors In this study, investigate the causal relationship in terms of input among economic growth and its constituent three main sectors, e.g. agricultural, industrial and services sectors, in Thailand. Agriculture plays an important role in contributing to socio-economic development in many countries. It is the primary source of employment, livelihood, and food security for the majority of rural people. However, due to rapid development and reformation of a country, the agriculture sector has been gradually neglected. Nevertheless, understanding the role of agriculture and its linkages to economic growth is important. Therefore, this study examines the contribution and the importance of agriculture to economic growth in Thailand. The industry sector, which includes manufacturing, construction, public utilities and mining, grew rapidly in Thailand. Indeed, GDP growth in countries that were industrialized earlier was largely driven by manufacturing. Thus, this sector is chosen as one of the variables to be analyzed in terms of its contribution to GDP in Thailand. The services sector is increasingly seen as means to promote economic development and reduce poverty. It is fast becoming the largest sector, in terms of its share of GDP and employment, in most developing countries. The services sector is highly diverse, ranging from infrastructure services, financial services, business services and social services. Since this sector contributes significantly to GDP in Thailand, therefore it is also included as a variable in this study. From equation chapter 3, the labor productivity can be structured as %∆𝐺𝐷𝑃 = %∆𝐴 ∙ . 𝐴 𝐼 𝑆 + %∆𝐼 ∙ + %∆𝑆 ∙ 𝐺𝐷𝑃 𝐺𝐷𝑃 𝐺𝐷𝑃. 38.

(48) Table 4.5: Thailand’s Economic growth by sector: Annual Growth Rate (%) Item. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. GDP. 5.4. 1.7. (0.7). 7.5. 0.8. 7.2. 2.7. 1.0. 3.1. 3.4. 3.9. 4.1. Agriculture. 1.9. 2.9. (0.2). (0.5). 6.3. 2.7. 0.7. (0.3). (6.5). (1.3). 3.7. 5.0. Industry. 6.6. 2.3. (1.9). 10.5. (4.1). 7.3. 1.5. (0.0). 3.0. 2.7. 1.8. 2.7. Services. 5.2. 1.0. (0.3). 7.0. 3.8. 8.4. 4.1. 2.0. 5.2. 4.6. 5.8. 5.1. Table 4.6: Thailand’s Economic growth by sectors: Constant 2010 Billion US Dollar Item. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. GDP. 314. 319. 317. 341. 344. 369. 379. 383. 394. 407. 423. 449. Agriculture. 35. 36. 36. 36. 38. 39. 39. 39. 37. 36,. 38. 39. Industry. 123. 126. 124. 136. 1301. 140. 143. 142. 147. 151. 153. 158. Services. 156. 158. 157. 169. 175. 189. 198. 201. 212. 222. 235. 246. Table 4.7: Sources of Thailand’s Economic growth by industry: Annual growth rate (%) Item. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. Agriculture. 0.21. 0.33. (0.08). (0.05). 0.70. 0.29. 0.07. (0.03). (0.60). (0.11). 0.33. 0.44. Industry. 2.59. 0.91. (0.08). 4.19. (1.56). 2.77. 0.56. (0.00). 1.12. 1.00. 0.66. 0.95. Services. 2.60. 0.52. (0.14). 3.44. 1.93. 4.34. 2.12. 1.04. 2.79. 2.51. 3.20. 2.80. SUM. 5.41. 1.76. (0.30). 7.58. 1.07. 7.39. 2.75. 1.01. 3.30. 3.40. 4.20. 4.19. GDP. 5.40. 1.70. (0.70). 7.50. 0.80. 7.20. 2.70. 1.00. 3.10. 3.40. 3.90. 4.10. Statistical Descriptive. 0.01. 0.06. 0.40. 0.08. 0.27. 0.19. 0.05. 0.01. 0.20. 0.00. 0.30. 0.09. 39.

(49) Table 4.8: Sources of Thailand’s Economic growth by industry: Regression Result Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations Predictor Constant Agriculture Industry Services. Coefficient 0.0015 1.001 1.0083 0.9984. 1 1 1 0.0063 12. Standard Error 0.004 0.0017 0.006 0.002. T-Statistic 0.3823 592.2632 167.013 495.2376. P-Value 0.7122 0 0 0. One of the measures of goodness of fit of regression models is the coefficient of determination, 𝑅]) . It is the proportion of the total variation in the dependent variable that is explained or accounted for by the variation in the independent variables. Table 4.8 displays the results of the multiple regression analysis to determine the relationship between real GDP (Y) and agriculture sector (X1), manufacturing sector (X2) and services sector (X3) in Thailand. The coefficient of determination (𝑅]) ) shows that a 100% variation in real GDP can be explained by these three independent variables. The subsectors of agriculture are forestry, hunting, and fishing, as well as cultivation of crops and livestock production. The subsectors of industry sector, which includes manufacturing, construction, public utilities and mining. In addition, the subsectors of services are wholesale and retail trade (including hotels and restaurants), transport, government, financial, professional and personal services such as education, health care, and real estate services. There are many subsectors in agriculture, industry and services, some of them bring high valueadded to real GDP per capita in Thailand.. 40.

(50) The interpretation of the coefficient of X1 is, if the agriculture sector increases by 1 dollar, GDP is expected to increase by 1.001 dollar. Moreover, if the industry sector (X2) increases by 1 dollar, GDP is expected to increase by 1.008 dollar. In addition, if the services sector (X3) increases by 1 dollar, GDP per is expected to rise 0.99 dollar. In conclusion, agriculture, industry and services sectors have some impact on GDP in Thailand. According to the results industry is the highest contributor to GDP in Thailand because the industry has huge investment in machine and equipment which can generate investment multiple effect on GDP. Also, the agriculture of sector is important in Thailand because not only provided for domestic food demand but also produced substantial surpluses of some commodities for export. With 20.4 million hectares of farmland, Thailand relies heavily on agricultural sector (ESCAP). Fresh flowers, especially orchids, are important exports. The land use is divided as follows: arable land 27%, permanent crops 7%, other 65% (FAO, 2006). Thailand has successfully the world's biggest rice exporter. Other crops grown in the country include rubber, sugarcane, cassava, fruit, cashew nuts, corn, tobacco, cotton, cocoa, peanuts, soybeans, medical plants, dairy, and fishery products. In other words, these factors enhance the contribution of the agriculture sector to economic growth in Thailand.. 41.

(51) C. Labor Productivity This study contributions of changes in factor inputs (labor and capital) , which measures any efficiency changes in the use of those inputs. Improvements in labor productivity have been largely due to increased capital per worker. From equation chapter 3, the labor productivity can be structured as 𝐺𝐷𝑃 = 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 × 𝐿𝑎𝑏𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦. Table 4.9: Sources of Thailand’s Economic growth by input Item. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 2015. 2016. 2017. 2018. Number of Employed Persons 36,249 37,016 37,706 38,037 38,464 38,941 38,906 38,077 38,016 37,692 37,458 37,450 (unit: in 1,000 persons) GDP at constant prices 314,054 319,473 317,267 341,105 343,970 368,883 378,796 382,525 394,078 407,015 422,941 449,271 (unit: in constant million dollars) Labor Productivity 8,664 8,631 8,414 8,968 8,943 9,473 9,736 10,046 10,366 10,798 11,291 11,997 (unit: in constant dollars). Number of Labour Productivity and Employed Persons 14,000. 39,500,000 39,000,000. 12,000. 38,500,000. 10,000. 38,000,000. 8,000. 37,500,000. 6,000. 36,500,000. 37,000,000 36,000,000. 4,000. 35,500,000. 2,000. 35,000,000. -. 34,500,000 1. 2. 3. 4. 5. 6. 7. Labor Productivity. 8. 9. 10. 11. 12. Number of Employed Persons. Figure 4.2: Number of labor productivity and employed persons. 42.

(52) Between 2007 and 2018, Labor productivity has been increasing. Government policies in many emerging economies have consistently been directed at promoting the growth of industry, and often at the expense of services. These attitudes are beginning to change, however, as both the public and government policymakers come to appreciate the wide diversity of industries within the service sector and the opportunities that services offer for employment growth. Some service industries have emerged as major areas of innovation, principally as users of information technology and communications (ITC) capital. In contrast to the trend falloff of employment contribution growth within industry and services, investor change location continues to be a strong contributor to the growth in aggregate employment after the political crisis. The changes location of investor effects added 1 percent per year to growth in 2007 to 2018. From an input perspective, Thailand had been a high rate of economic growth in past years. Labor productivity growth is about 2.7 percent per year and continue this percent in the future. Future more, if the incremental employment growth is concentrated in industry and services, gain from reallocation should continue to contribute to TFP growth in the range 1.5-2 percent annually.. 43.

(53) D. Technological Progress The technical progress function is an economic measure which seeks to explain changes in the level of economic output in terms of the level of technical progress and innovation in a country. Rather than looking at economic growth as a form of efficiently allocating inputs, the technical progress function explains economic growth regarding investment in technological progress. From equation chapter 3, the technological progress can be structured as log 𝑦 = log 𝐴 + 𝑔𝑡 + 0.25 log 𝐾 + 0.75 log 𝐿. A common measure of technological progress is growth in total factor productivity (TFP). This is the relative efficiency with which an economy produces goods and services in additions to labor and capital.. Table 4.10: Sources of Thailand’s Economic growth by technological progress: Increase (%) Period Capital (K) Labor (L) GDP 2007 80,773 36,249,000 314,054. t 1. Increase % 3.10. 2008. 88,209. 37,016,001 319,473. 2. 3.09. 2009. 66,046. 37,706,000 317,267. 3. 3.11. 2010. 86,492. 38,037,000 341,105. 4. 3.11. 2011. 88,884. 38,464,001 343,970. 5. 3.11. 2012. 98,682. 38,941,000 368,883. 6. 3.13. 2013. 101,517. 38,906,001 378,796. 7. 3.13. 2014. 89,670. 38,077,000 382,525. 8. 3.16. 2015. 91,470. 38,016,000 394,078. 9. 3.17. 2016. 84,732. 37,692,001 407,015 10. 3.20. 2017. 97,053. 37,458,000 422,941 11. 3.20. 2018. 113,589. 37,450,000 449,271 12. 3.20. 44.