Dealing with Structural Change: A Diagnosis of the Thai Economy

The entry of China into the global economy and regional economic integration is ushering in a new global production structure. Thailand will have to find her place in this new global order by embracing internal structural change. The paper finds that Thailand will have to confront sizeable structural change due to global developments. And depending on how global and domestic developments play out, there are wide-ranging possibilities on how Thailand may transform structurally. Nevertheless, no matter what possibility materializes, the Thai economy’s smooth transformation rests on its adaptability and resiliency. We focus on adaptability in terms of physical mobility and resiliency in terms of firm resiliency to shocks. Thailand’s physical capital mobility is adequate by international standards, but rigidities exist in sectors that lack competition or financial access. At the firm level, the overall picture is that of resiliency to shocks, but there are firms in non-competitive sectors that appear particularly vulnerable. On overall, the Thai economy is adaptable and resilient but will be challenged by imminent and substantial structural change; the Thai economy must build adaptability and resiliency from within. For example, policymakers can facilitate resource allocation by fostering competition and sustaining financial sector liberalization. Firms should enhance productivity, seek out opportunities in new markets, prepare for regional competition and manage financial risk more carefully.