Impact Assessment of Thailand’s Promotion of Strategic Export Industries: A Computable General Equilibrium Model (CGE) Approach

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Internal project

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2547

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Thailand currently promotes some industries to become strategic export industries so as to enhance her competitiveness in the world market. By use of the multi-sectoral CGE model, this paper aims to assess the impact of such promotion in three of Thailand’s strategic industries: food, tourism and automotive industries on the Thai economy. Thailand’s 1998 input-output table is the main database used.

It was found that an increase of income from export may cause a negative impact on economic growth and aggregate employment. Furthermore, the export expansion of different sectors would cause significantly different impacts to the economy. Export promotion in one sector may have a negative impact on export promotion in another sector. For example, we found that the increase of export demand for food processing, and motor vehicles and parts, would cause a reduction in tourism.

A 1,000 million baht increase of export value of food processing would generate a benefit of 59 million baht increase to the social welfare in the short run, and 277 million baht increase to the social welfare in the long run. In the short run, the country would suffer from a reduction in economic growth, that is, real GDP growth would decline by 0.002% with a reduction in aggregate employment of 0.007%. After all, in the long run real GDP would increase by 0.004%. Inflation would be increased by 0.021% in the short run, with the increase reduced to 0.014% in the long run. The current account balance is 320 million baht more surplus in the short run, and 257 million baht more surplus in the long run.

All agricultural sectors benefit from increased export demand in food processing except the rubber sector. Sectors that gain the most are cereals and livestock, respectively. Other sectors lose benefit from increased export demand in food processing. Sectors that lose the most are textile and leather, electrical machinery and appliances, and restaurant and hotel, respectively.

A 1,000 million baht increase in the export value of motor vehicles and parts would generate a benefit of 351 million baht increase to social welfare in the short run, and a 404 million baht increase to social welfare in the long run. In the short run, real GDP would be increased by 0.007% with an increase in aggregate employment of some 0.012%, while in the long run real GDP would be increased by 0.01%. Inflation would be increased by 0.006% in the short run, with the increase reduced to 0.004% in the long run. Current account balance is 288 million baht more surplus in the short run, with a decline of more surplus to 168 million baht in the long run. The sector that benefits significantly from an increased export in motor vehicles and parts is the public services only. Sectors that lose benefit are textile and leather, and other services.

A 1,000 million baht increase in tourism would generate a benefit of 182 million baht increase to the social welfare in the short run, and 578 million baht increase to the social welfare in the long run. In the short run, real GDP would be increased by 0.003% with an increase in aggregate employment of 0.009%, while in the long run real GDP would be increased by 0.014%. Inflation would be increased by 0.019% in the short run, with the increase reduced greatly to 0.007% in the long run. The current account balance is 305 million baht more surplus in the short run, with a decline of more surplus to 165 million baht in the long run. Sectors that benefit most from the expansion of tourism are transport, and restaurant and hotel. Sectors that lose benefit are most of those in industrial sectors.

The simulation results have shown that long-run impacts are more desirable than short-run impacts. Therefore, the short-run period should be shortened in order to gain more benefits from the long run. It is recommended that the capital installation period (investment period) should be reduced.

We found that trade sector plays an important role in determining the cost of many sectors because its price can affect the cost of production in the whole economy. As a consequence, the infrastructure in this sector should be developed. As mentioned earlier, export promotion in one sector may impact undesirably on the export promotion of other sectors. Thus, the cross impact among policies of export promotion should be studied. This will lead to higher efficiency of the export promotion policies.