Macro-Economics and Thailand’s Poor

By: Kendall Brannen, Westminster College, B.S. Economics, May 1, 2013

My interests while studying Economics at Westminster has been economic wellbeing of communities and what it takes for those communities to be sustainable and self-serving. When I was initially thinking about this assignment I wanted to look at the macroeconomic situation that is specific to Thailand. In this paper I will look at the descriptive statistics that surround the macro-economy and attempt to extrapolate more of the story that lay within each statistic/variable. As you can imagine there are a lot of factors that surround each observation, which for this observation paper I will simplify assumptions and take a high level approach.

I began researching to understand the economic conditions within Thailand and how it compares to the world economy with general descriptive statistics of the major economic indicators used globally. Thailand’s Gini Coefficient, a measure of income equality distribution, ranked 14th highest among 140 countries. That number rose between 2002 and 2009 from 42 to 53.6.  From this observation Thailand is becoming increasingly more unequal in its income distributions.  There is direct correlation between income distributions and poverty, when the lower quintiles have a larger percentage of the population within it, the income disparity widens and because of this the gini coefficient is a great indicator of a country’s poverty level. Below is a simple graph to help explain the concept of equal income distribution. It assumes a one to one slope for income to population as a fair measure.

GDP for Thailand, adjusting for purchasing power parity is 601.4B in 2011.  In comparison to the world’s economy Thailand ranks 25th.  A beak-down by industry sector represented as a percentage of GDP, Agriculture 13.3%, Industry 34%, Services 52.7%, although labor force participation by sector, Agriculture 40.7%, Industry 13.2%, Services 46.1%.  Comparing the top three sectors relative to employment levels, Agriculture is low in revenues relative to GDP but employs the most people by sector and Industry is just the inverse with high revenues and less labor employment. Services are close to being a one to one ratio of revenue generating to labor employment.

Thailand’s major agriculture crops are rice, cassava (manioc), rubber, corn, sugarcane, coconuts, and soybeans.  Industry in Thailand is comprised of tourism, textiles and garments, agricultural processing, beverages, tobacco, cement, light manufacturing such as jewelry and electric appliances, computers and parts, integrated circuits, furniture, plastics, automobiles and automotive parts; world’s second-largest tungsten producer and third-largest tin producer.

While this information may seem irrelevant to poverty, we can extrapolate some additional information from this data. Agriculture is the second largest employer next to services by only a 5.4% spread. Agriculture typically is labor intensive but also is not the largest when compared to the total sector’s contributions to GDP.  It is only 13% compared to 52% which are services. Therefore the country has to employ a larger amount of people with less money. And since agriculture is traditionally a rural village job and involves people working most all the day there is no room for a second job. Rural villages struggle with additional income because of this therefore will have a higher population living under the poverty level.

Thailand’s unemployment in 2011 was only 0.7%, the third lowest in the world economy. However, not understanding thoroughly how unemployment is measured or the social structure of the working class does not give much information for interpretation. Therefore we switch to the poverty line.

Only 8.1% of households are below Thailand’s poverty line, compared to 15.1% in the U.S., with most recent data gathered from the CIA world fact book, 2010.  Thailand has a much lower percentage of its population living under the poverty line as compared to the United States. However, this number could also be deceptive since a larger portion of Thailand is rural, underdeveloped, with little to no infrastructure and without clean running water. So, even if a family lives above the poverty line they could still be living in third world or substandard conditions. This leads into investment of infrastructure. 

Investment as gross (fixed assets) is described as total business spending on fixed assets, such as factories, machinery, equipment, dwellings, and inventories of raw materials, which provide the basis for future production. It is measured gross of the depreciation of the assets, i.e., it includes investment that merely replaces worn-out or scrapped capital.  Thailand’s investment on fixed capital is 26.2% of GDP, as a comparison the US spends 12.4%. The high spending on fixed capital can be attributed to the high amount of industry as we talked about before representing 34% of GDP.  The size of the sector may require more capital intensive investment for machinery.  Looking at the large capital investment in private industry there is also going to be a large correlation of infrastructure spending by the government in order to support the growth of the private sector. So, as the private sector increases as a percentage of GDP as well as within investment as gross fixed assets we will begin to indirectly see improvements to infrastructure such as roads, access to running water because these infrastructure investments are financially paid for through tax appropriations on sales and businesses.

Taxes comprise 19.2% of GDP, and Thailand still runs a deficit of 2.9% of GDP. Public debt is 40.5% and is ranked 78th in the world economy. Taxes do not offer much in terms of poverty insight, but can be burdensome if the tax laws levy taxes as a higher percentage to the poor than the rich.

Inflation rates are 3.8%, up from last year of 3.4%, Ranked as 92nd in the world economy. The inflation rate can dramatically affect the poor than any other socioeconomic group because it becomes increasingly more expensive to purchase the necessities such as food with the same budget that couldn’t purchase everything the poor needed to begin with. Now there is even less to go around once you have inflation of goods.

Thailand’s exports generate 244B, and include partnerships with China 12%, Japan 10.5%, US 9.6%, Hong Kong 7.2%, Malaysia 5.4%, Singapore 5%, Indonesia 4.4% and include export commodities such as textiles and footwear, fishery products, rice, rubber, jewelry, automobiles, computers and electrical appliances.  Thailand’s imports cost 214B and include products like capital goods, intermediate goods and raw materials, consumer goods and fuels. Import partners are Japan 18.5%, China 13.4%, UAE 6.3%, US 5.9%, Malaysia 5.4%, South Korea 4%.

Thailand has an export surplus which means they export more than they import. Which is opposite of how the United States operates their international import and export trade. However, the US is a consumer society. Thailand is in a great position as a country because they do export more than they import. This is particularly good because they have the ability to purchase less than they export which creates wealth for the country. This leaves Thailand with a 30B dollar trade surplus.

In conclusion, Thailand has a widening gap of income inequality, which means the rich remain rich but the poor and middle class are getting poorer; Thailand is very labor dependent on agriculture and employs a large percentage of the workforce within the agriculture sector but is plagued with having the lowest percentage of GDP and therefore agriculture is inherently the single largest employer of the poor.  Thailand has very low unemployment at 0.8% but there is not enough direct information about how this figure is estimated and could be deceptive. A lower percentage of the population as compared to the US live under the poverty line, however, the rural areas where agriculture is prevalent, workers may be working close to the poverty level as it is defined but in these areas there is low development in infrastructure such as running water and sewage. This is also a deceptive figure that underestimates the need for the poor. The increase in private investments could push the government to spend more in improvements to infrastructure for the rural and poor through the appropriation of taxes and the additional tax revenues through these new investments and business growth. And lastly, on the macro level, looking at Thailand’s imports and exports they have a large trade surplus which is positive because they have additional revenue through their exports. This trade surplus can allow for more spending on social programs that could be geared toward helping the poor, of course if the political priorities are positioned this way.

Sources:

Central Ingelligence Agency. (2013, April 22). The world fact book, thailand. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/th.html

The World Bank. (2013). The world bank, data, thailand. Retrieved from http://data.worldbank.org/country/thailand

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