Exporting Products to Thailand

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Study and Analysis of Thailand's Developing Economy

Thailand's economy is defined by more than a decade of continuous and rapid economic growth starting in 1985, followed by a brutal recession that started near the end of 1997. During the boom years, economic growth averaged more than 7 percent annually, one of the highest rates in the world. Many different factors added to the rapid growth of Thailand's economy; low wages, policy reforms that opened the economy more to trade, and careful economic management resulted in low inflation and a stable exchange rate. These factors encouraged domestic savings and investment and made the Thai economy an ideal host for foreign investment. As industry expanded, many Thai people who previously had worked in agriculture began to work in manufacturing, slowing growth in the agriculture sector. (This is would make a good introduction - be sure to keep it brief; but highlighting the areas you feel pertinent to the assignment)

The economy of Thailand, until recently, has been the model of progress and growth in Southeast Asia. At present, the Thai economy is slowly recovering from the recent regional downturn. However, much of Thailand's economic trouble could have been avoided. The problems encountered will be outlined in order to provide a model of what not to do in a similar situation.

Thailand's recent history has been one continuous trend of GDP growth. In the 1950's, the Thai economy managed to grow at an average rate of approximately 5% per year. By the mid 1960's, the average annual rate of output growth had increased to 8.4%. Due to the sharply increasing petroleum prices in the 1970's, Thailand's growth slowed temporarily, in part due to heavy dependency on oil as a fuel source. By the late 70's, aggregate output in Thailand had increased to the point that average growth per year was near 7% (Muscat, 2-3). It must be noted, nonetheless, that some of this amazing economic growth was due to U.S. subsidies, given to help Thailand combat the illegal narcotics trade (Muscat, 251).

In the 1980's, Thailand saw continued expansion of its output, but this is largely due to the shifts taking place in the Thai economy. Historically, Thailand has depended on the export of primary goods such as rice, natural rubber, corn and sugar. In the late 70's and early 80's, industry (particularly textiles) had begun to significantly contribute to aggregate output, as had tourism (Muscat, 3&191). The export of staple crops has enjoyed protection of the government in that Thai regulations ensure that domestic demand for these items has been met before any exports can be made (http://www.eximworld.com/ti-bcc/ibp/eft/eft_iecl.htm)

The real trouble for Thailand began in the late 1980's and early 1990's. While the government had always followed stringent guidelines regarding debt structure for the public sector, the private sector was under no such obligation. Thailand was hungry for foreign funds to finance the acquisition of capital goods with which to enhance production, private firms increased borrowing at a rapid rate. This was, in part, made possible by the inception of the Bangkok International Banking Facility, which made transactions in foreign currency accounts much easier. In 1990, net capital inflow to Thailand was 8% of GDP and by 1995; the figure had grown to 14%. Another contributing factor was the mismatch in the timing of industrial projects. That is to say that many Thai firms used short-term debt, often in excess of their net capital holdings, to finance long-term projects. As a result, debt began to accumulate rapidly over a short time (Sussangkarn, 1-2).

Yet another symptom of Thailand's economic infirmity was the loss of comparative advantage in labor-intensive industries and an increasingly unfavorable balance of trade. Exports of many significant items had ...