Rethinking the Role of Agriculture and Agro-Industry in the Economic Development of Thailand

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Rethinking the Role of Agriculture and
Agro-Industry in the Economic
Development of Thailand: Input-Output
and CGE Analyses (Ph.D. Dissertation)
Thaiprasert, Nalitra
Graduate School of International Development, Nagoya University,
Japan
April 2006
Online at https://mpra.ub.uni-muenchen.de/1089/
MPRA Paper No. 1089, posted 09 Dec 2006 UTC
Rethinking the Role of Agriculture and Agro-Industry
in the Economic Development of Thailand:
Input-Output and CGE Analyses

by

Nalitra THAIPRASERT

DISSERTATION
Submitted in Partial Fulfillment of the Requirements
For the Degree of
DOCTOR OF PHILOSOPHY
GRADUATE SCHOOL OF INTERNATIONAL DEVELOPMENT
NAGOYA UNIVERSITY

Approved by the Dissertation Committee:
Shigeru OTSUBO (Chairperson) _____________________
Signature

Mitsuo EZAKI _____________________
Signature

Hiroshi OSADA _____________________
Signature

Approved by the GSID Committee: April 19, 2006
To Mom and Dad
Acknowledgement

“The hardest thing in life is to learn which bridge to cross and which to burn.”
Lawrence J. Peter

My study for the doctorate has been the biggest challenge in my life. Without
tremendous support from Professor Shigeru Otsubo, I could not have completed my Ph.D. today.
Professor Otsubo gave inspiration and encouragement every time I was about to give up. His
professional advice, both in academic and in career paths, has always brightened me up like a
good medicine. I admire his professional attitude and incisive comments that encouraged me to
go further and drew out my ideas during the research. I have the honor to have been under his
supervision for over five years in GSID.
I am grateful to have two professional experts on the methodologies used in the
dissertation as my academic advisors. The first is Professor Mitsuo Ezaki; whom I learned a
great deal from his courses on Development Information Systems, and Quantitative
Development Policy Analysis, especially regarding econometrics and economic modeling,
including the CGE modeling which I applied in this study. The second is Professor Hiroshi
Osada who possesses in-depth knowledge of input-output analysis. I was able to receive his kind
advice on the chapter using this methodology.
I feel I have always been watched over by good spirits, as every time my study got stuck,
I found unexpected help. The persons to whom I am particularly indebted are Dr. Nguyen Tien
Dung from Vietnam Institute of Science and Technology, and Mr. Ye Zuo Yi from China. Dr.
Nguyen has been very kind to me since when I was writing my Master’s thesis in 2002. His
short visit back to GSID came at the right moment when I desperately needed help. Dr. Nguyen
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sharp guidance on the SAM and CGE analyses was extremely precious. I could not have
completed these two analyses without his help and support. Mr. Ye Zuo Yi is a very good friend
of mine from GSID. He kindly taught me step by step on computer techniques relating to the
input-output analysis, at a time when we barely knew each other. I am very grateful to these two
special persons, as they showed me how people’s kindness can change someone’s life.
My study in Japan was made possible through a scholarship from the Japanese
government. For this, I am thankful to the people of Japan and the Japanese government for
offering educational opportunities to foreign students like myself. Six years in Japan gave me
priceless experiences, academically, culturally, and spiritually.
A special thank you is extended to my host family in Japan, the Ono family in Osaka,
whom I have known for over ten years since I was an exchange student at Osaka University in
1996, and their friends, Mr. & Mrs. Funahashi in Nagoya. These two families have been so kind
and have given me joyful experiences during my stay in Japan.
Friends are precious gifts, especially for people who are away from home. I am lucky to
have good friends around who have helped and supported me. I am glad that during my study in
Japan I could build strong friendships with people from various countries, as well as from
Thailand.
I also wish to thank Ms. Melisanda Berkowitz who carefully proofread my dissertation
as well as other research papers. She also has been very kind and understanding on matters
beyond study.
I am thankful to my husband Joe for his support, understanding, and generosity over all
the years while I was pursing my studies. There has never made a negative comment about my
pursing a higher education. I am grateful that my childhood was surrounded by my diligent
siblings, Yuk, Nan, and Nui, who have always shown me good directions in life.
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I would like to dedicate this dissertation to the most important persons in my life, my
mom and dad, who have sacrificed so much and taught us unconditional love. My dad passed
away 20 years ago, but I can still feel that his love is around me. My mom has raised us alone
with her best effort to give us the best education. I am very thankful to be born as their daughter.

“The reward of a thing well done is to have done it.”
Ralph Waldo Emerson

January 2006
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Table of Contents

Acknowledgement……………………………………………………………………………...iii
Table of Contents……………………………………………………………………………….vi
List of Tables…………………………………………………………………………………....x
List of Figures…………………………………………………………………………………xiii

Chapter I—Introduction……………………………………………………………………….1
.
1.1 Statement of Problems……………………………………………………………………….1
.
1.2 Objective of the Study……………………………………………………………………….3
.
1.3 Research Hypothesis………………………………………………………………………....3
1.4 Methodology of the Study…………………………………………………………………...4
.
1.5 Organization of the Dissertation……………………………………………………………..4
.

Chapter II—Structural Transformation of Thailand: 1960 to 2005………………………...7
2.1 Background—Theoretical Arguments and Empirical Research Regarding Structural
Transformation ……………………………………………………………………………....8
2.1.1 Theoretical Arguments Regarding Structural Transformation…….…………………...9
2.1.2 Empirical Research on Structural Transformation………..…………………………..12
2.1.2.1 The Concept…………………………………………………………………...13
2.1.2.2 The Methodology of Comparative Analyses……………………………….....14
2.1.2.3 Patterns of Growth and Accumulation……………………………..…………14
.
2.1.2.4 Changes in Sector Proportions………………………………………………...17
2.2 Features of Structural Transformation of Thailand…………………………………………24
.
2.2.1 Thailand’s Growth and Accumulation……………………………………………......25
.
2.2.1.1 Growth………………………………………………………………………...25
2.2.1.2 Capital Accumulation and TFP growth…………………………….…………27
2.2.2 Changes in Thailand’s Sector Proportions……….…………………………………...33
2.2.2.1 Employment…………………………..………………………………………33
2.2.2.2 Production and Trade Patterns………………………………………..………35
2.2.3 Accounting for the Transformation—Demand Side Decomposition:
Decomposition of the Factors of Growth in the Thai Economy…………...…………46
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2.2.4 Other Indicators Regarding the Structural Transformation of Thailand……………...55
2.2.4.1 Urbanization…………………………………………………………………..55
2.2.4.2 Demographic Transition………………………………………………………56
2.2.4.3 Income Distribution………….………………………………………………..56
2.2.4.4 Institutional Development…………………………………………………….58
2.3 Problems in Economic Development and Structural Transformation of Thailand…………58

Chapter III— Structural Transformation and Thai Agriculture………………………….60
3.1 Overview of Thai Agriculture…………………………………….………………………...61
3.1.1 The Condition of Thai Agriculture…………………………………………...………61
.
3.1.1.1 The Two Different Aspects of Thai Agriculture……………...……………....61
3.1.1.2 Tenancy and Landlessness……………………………………………………66
3.1.1.3 Low Productivity……………………………………………………….……..69
3.1.1.4 Thailand’s Attempt to Become a Newly Agro-Industrializing Country……...76
3.1.2 Causes of the Depressed Agrarian Condition –The Bias of Government Policies…...79
3.1.2.1 Agricultural Pricing Policies……………………………………….…………81
3.1.2.2 Biased Urban-Industrial Policies………….………………………………….84
.
3.1.2.3 Suppressing Peasants’ Interests……………………………………………....86
.
3.1.3 Recent Strategies to Promote Thai Agricultural Development………………………89
.
3.1.3.1 The King’s New Theory………………………….…………………………...89
3.1.3.2 Prime Minister Thaksin’s Development Policies…………………………….90
3.2 Structural Transformation and Thai Agriculture…………………………………………...91
3.2.1 Meanings of Agricultural Transformation……………………………………………91
3.2.1.1 Application to Thailand………………………………………………………94
3.2.2 Agriculture’s Role in Economic Development………………………………………95
3.2.3 Effects of Structural Transformation on Thai Agriculture………………………….101
3.2.3.1 Costs to Agriculture…………………………………………………………101
3.2.3.2 Suggestions………………………………………………………………….102
3.3 Concluding Remarks…………………………………………...…………………………104
.

Chapter IV— Potential of Thai Agricultural Sector and Agro-Industry…….………….107
4.1 Potential of Thai Agricultural Sector and Agro-Industry……………….………….…….108
.
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4.1.1 Food Demand Issues and Ability to Export………………………………………...108
4.1.2 Technological Issues………………………………………………………………..112
4.1.3 Linkage Effects and Multiplier Effects……………………………………………..113
4.2 The Intersectoral Linkages and the Key Sector Analysis—An Input-Output Analysis.…113
.
4.2.1 The Theoretical Background of Input-Output Analysis…….…...………………....114
.
4.2.1.1 The Input-Output Framework……………...……………………………….114
.
4.2.1.2 The Inverse Matrix……………………………………...…………………..118
4.2.1.3 Competitive- and Noncompetitive-Import Type Input-Output Tables..…....119
4.2.1.4 Intersectoral Backward and Forward Linkages…...……..…………………124
.
4.2.2 The Key Sector Analysis……………………………………………………………130
4.2.3 Results of the Key Sector Analysis…………………………………………………132
4.3 Agricultural Sector and Agro-Industry’s Multiplier Effects—SAM and Input-Output
Analyses…………………………………………………………………………………..143
.
4.3.1 Previous Study on Multiplier Effect Analysis Using SAM………...………………143
.
4.3.1.1 Simulation Results from SAM Multiplier Analysis………………………...145
4.3.2 The Input-Output Multiplier Analysis………………………………….…………...150
4.3.2.1 Simulation Results from Input-Output Multiplier Analysis…….…………..153
4.4 Concluding Remarks………………………………………………………….…………..158

Chapter V—Proposing A New Development Strategy—Labor Allocation to
Agro-Industry……………………………………………………..…………………161
.
5.1 Objective of the CGE Analysis on the Thai Economy……….………..………………….163
5.2 Literature Survey of CGE Models of Thailand…………....……………………………...165
.
5.3 Simulating the New Strategy on the Thai Economy—A CGE Analysis……....………….169
5.3.1 Model Specification…………………………………………………………………169
5.3.2 The Real Sector in Standard CGE model…………………………………………...170
5.3.2.1 List of Equations and Variables………………….…..……………………..174
.
5.3.2.2 The Price Block…………………………………………………………......180
5.3.2.3 The Production and Commodity Block……………………………………..181
5.3.2.4 The Institution Block………………………………………………………..183
5.3.2.5 The System Constraint Block……………………………………………….184
5.3.3 The Equilibrium Conditions—Model Calibration……….………….………………187
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5.3.3.1 Parameter Estimation……………………………………………………….188
5.3.3.2 Elasticities Estimation…………………………...…………………………190
.
5.3.3.3 Closures Selection………………………………………………………….191
.
5.3.4 Simulation Design and Simulation Results………………………………………...192
.
5.3.4.1 Simulation Design………………………………………………………….192
.
5.3.4.2 Simulation Results………………………………………………………….198
A. Simulations on Labor Allocations (Simulations 1 and 2)........………….199
B. Simulations on Capital Allocations (Simulations 3 and 4)…..……..…...206
C. Simulations on Tax and Subsidy Policies (Simulations 5, 6 and 7)...…...211
D. Simulation on Government Expenditure Policy (Simulation 8)…...……218
E. Simulation on Government Transfer Policy (Simulation 9)……...……..220
.
F. Simulation on Change in Export Price (Simulation 10)……….………...224
G. Simulation on Change in Import Price (Simulation 11)………………...227
H. Simulations on Exchange Rate Policies (Simulations 12 and 13).......….231
I. Simulation on Improvement in Production Technology (Simulation 14).234
5.4 Distributional Impacts of Simulations……………………………………………………238
5.5 Concluding Remarks……………………………………………………………………...247

Chapter VI—Conclusion and Policy Implications….….…………………………………252

References…………………………………………………………………………………….259

Appendix A: Thai Migrant Labor Statistics, 1998-2005……………………………………..267
Appendix B: Competitive-Import Type Input-Output Table of Thailand, 2000……………..269
Appendix C: Noncompetitive-Import Type Input-Output Table of Thailand, 2000…………272
Appendix D: Import Matrix from Input-Output Table of Thailand, 2000…...………………275
Appendix E: Social Accounting Matrix Multipliers, Thailand, 1998………………………..278
Appendix F: Agro-Industry According to Regions, 2004…………………………………....280
Appendix G: Simulation Results from the CGE Analysis…………………..……………….283
.

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