Thailand and the East Asian Economic Model

April2013

Walsh, John, “Thailand and the East Asian Economic Model,” Pacific Business Review: A Quarterly Journal of Management, Vol.5, No.10 (April, 2013), pp.81-8, available at: http://pbr.co.in/Vol%205%20Iss%2010/11.pdf.

Abstract:

The East Asian Economic Model (EAEM) focuses closely on the economic aspects by which first Northeast Asian and secondly Southeast Asian nations attained rapid economic growth from the second half of the twentieth century. The EAEM considers the important economic aspects of the process: import-substitution, export-orientation, openness to inward investment and low wage cost competitiveness with an Original Equipment Manufacturing (OEM) approach. This model was officially introduced into official Thai policy as part of the First National Economic Development Plan of 1961. Since then, the Thai economy has developed along parallel lines, with a large subsistence agricultural sector, in addition to repressive acts by authorities, serving to dampen any significant movement towards higher labour costs. This form of the EAEM was quite successful in promoting growth until the 1997 crisis, when its limitations were first thrown into sharp relief. The governments of 2001-6 attempted to create a different trajectory for the economy but this was brought short by a military coup and a stultifying period of junta rule. The economic crisis that emerged around the world in 2008 and is becoming manifested in 2009 in Thailand in major job losses in the manufacturing industry represents a further threat to the value of the EAEM. New competition from Vietnam and China, in particular, make low-labour cost competitiveness no longer a viable strategy. The country has become lodged in what the World Bank calls the Middle Income Trap, in which the means by which a low-income country reaches a middle-income situation cannot be the same means by which the country can move from middle-income to high-income. As a means of exiting this trap, the current Pheu Thai administration has launched a range of measures, including a significant rise in the minimum wage and support for commercial enterprises to add value to their production. It remains to be seen how successful these efforts will prove to be.

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