Balance-of-payments constrained growth, structural change, and the Thai economy

Abstract

This paper tests the balance-of-payments constrained growth model using Thailand as a case study. The study explicitly considers the potential existence of a structural break when estimating the model. On balance, it is found that Thailand's long-run economic growth over the period 1962-2009 is balance-of-payments constrained. Besides the positive effect of export growth, changes in the terms of trade also played a role, but had an adverse effect on the growth performance of Thailand. Thailand's economic growth declined following the Asian financial crisis in 1998 and this study reveals that the root cause of this disappointing performance lay in the dramatic decline in the world income elasticity of demand for its manufacturing exports. This is likely to be the result of an adverse structural change within the sector.

Keywords:

• balance-of-payments constrained growth
• Thailand
• exports
• income elasticity of demand
• structural change