No. 22/2002
INTERNATIONAL SPILLOVERS, PRODUCTIVITY GROWTH AND
OPENNESS IN THAILAND: AN INTERTEMPORAL GENERAL
EQUILIBRIUM ANALYSIS
Xinshen Diao
Jørn Rattsø
Hildegunn Ekroll Stokke
Abstract:
Thailand has experienced economic growth well above world averages for
about 40 years. It is a challenge to understand the sources of this high
growth path, and in particular why growth has not slowed down with assumed
decreasing returns to capital. We develop an intertemporal general equilbrium
model separating between agriculture and industry, and with open capital
market and endogenous productivity growth to analyze the underlying adjustment
mechanisms. Foreign technology spillover embodied in trade is assumed
to be the driving force of the productivity growth, consistent with available
econometric evidence. The high growth experience is understood as a transition
path with interaction between productivity growth, openness and capital
investment. Counterfactual analysis shows how protection may have had
serious detrimental effect on growth rate due to productivity and investment
slowdown. The role of relative prices in constraining growth is investigated,
inspired by the Acemoglu-Ventura hypothesis of growth slowdown due to
terms of trade effect. In our setting, low elasticity between domestic
and exports goods in supply leads to large relative price shifts for domestic
goods, but promotes investment and growth during transition.
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