NOTE: Free essay sample provided on this page should be used for references or sample purposes only. The sample essay is available to anyone, so any direct quoting without mentioning the source will be considered plagiarism by schools, colleges and universities that use plagiarism detection software. To get a completely brand-new, plagiarism-free essay, please use our essay writing service.
One click instant price quote
... t. However, in the 1990 's, public savings had increased remarkably, showing a 1993 surplus of almost 164 billion baht which steadily increased to a reported 362 billion baht in 1997. Unfortunately, outstanding debt, a great deal of which was foreign-owned, had also grown significantly, from $ 52 billion in 1993 to over $ 90 billion in 1996. In the same period, the average maturity for outstanding debt declined from 22. 1 years [ 1990 ] to 18. 4 years [ 1996 ], indicating a shift from a long-term to short-term debt structure. In addition, the domestic savings rate had dropped considerably, to a mere 5 % of income, a trend that continued throughout the 1990 's (Asian Development Bank, than.
htm). In light of this fact, further growth had to come from the increased inflow of foreign investment. In addition, Kasliwal indicates that as the amount of foreign capital in an economy increases, the amount of domestic savings should decrease (130 - 133). From 1980 to 1996, the Thai economy experienced a stable period of low inflation. Nominal interest rates for the same period fluctuated as would be expected. In the period from 1990 - 94, nominal rates decreased from a high of 19 % to 14. 4 %.
In the next two years, nominal interest rates would only climb slightly [to 16. 25 % then down to 15. 25 % in 1996 ] (Asian Development Bank, than. htm). This seems to be counter-intuitive, as the Fisher effect would indicate that nominal interest rates are positively related to the rate of inflation (Mankiw, 169). The migration of workers from rural areas to urban over the period in question has also had large and far-reaching effects on Thailand's economy. This structural shift is evidenced by the gradual flattening of growth in agriculture, contrasted by the sharper increase in manufacturing production [graphs: "Selected GDP Contribution by Industry", "Production Indices"].
Another indication is a clear downward trend in agricultural employment levels, and a steady increase in manufacturing and service industry levels of employment [graph: "Labor Force Trends 1980 - 1996 "]. Data also indicate that while growth of agricultural productivity is slowing, overall production in agriculture is increasing [graph: "Total Production for Major Crops] (Asian Development Bank). The behavior of interest rates give some indication of what was is going on with Thailand's private sector debt. In the climate of falling interest rates, holders of long-term debt would find themselves stuck with higher-than-market interest payments.
This may be one cause of the movement toward shorter-term debt instruments. The large influx of foreign capital can be deduced. Taking into account the Fisher effect, in a period of steady inflation, and decreasing nominal interest rates, it can be assumed that the real interest rate is also declining. According to the model of a small, open economy, a decrease in interest rates stimulates investment. Since domestic savings / investment decreased and then leveled off, the only place that the excess capital could have originated is abroad. One can assume that the flat savings curve can be explained by the relatively slow growth of taxation combined with a much sharper increase in consumption (Asian Development Bank, transact.
htm). Even if pre-tax income remained unchanged, savings would be crowded out. Though I have found no direct evidence, I would hypothesize that Thailand faced very little credit rationing in the early 1990 's, and as a result, the domestic nominal interest rate was drawn downward. I also suspect that Thailand's credit rating in the early 1990 's was much higher than it is now due to its impressive and stable growth in previous decades. This easy access to borrowed funds proved to be a strong temptation for emerging private industry in Thailand.
Part of the problem in Thailand is that there is very little regulation of transactions in the private sector, with only minimum limits for borrowing established by the Thai Ministry of Finance (web). The IMF has mandated a reduction in overall national expenditures, and Thailand has complied for the time being. All indications point toward an economic recovery (Sussangkarn, 4). However, it is absolutely essential that Thailand adopt some from of regulation of debt for private industry until such a time as regulation is no longer necessary. Simple borrowing limits, or mandated debt structures with set foreign to domestic debt ratios might suffice. Some flexibility would probably be needed, but the amount is a policy decision for the Thai government to make.
Over time, economic emphasis has been shifting from production of primary products to manufacturing, and there is much evidence of this. In absence of actual wage data, the Harris-Today model cannot be strictly applied. However, the fact that the number of worker in agricultural sectors is decreasing, while the number of workers in service and manufacturing jobs is on the rise may provide secondary evidence toward the application of this model. Also, the fact that agricultural output is still increasing may indicate that the marginal productivity of labor is increasing as well, which one would expect with attrition in the workforce. In addition, the large growth experienced by the urban sector [both organized and unorganized] shows that an industrial infrastructure is being developed. This is a preliminary indication that Thailand is "growing up" as a nation.
A recent article insists that the future, for Thailand, is now. This article claims that by last year, electronic goods manufactured in Thailand made up almost 25 % of total exports. A large portion of these goods are computer hard drives, manufactured and exported by large multinationals such as Seagate Technologies and Philips Semiconductor (Santiago, 28). It is this type of direct foreign investment that will fuel the economies of LDCs such as Thailand into the next century. As multinational corporations seek to utilize Thailand's abundance of labor, Thailand itself will again have comparative advantage in [some] labor-intensive industries.
Whether they can maintain that advantage remains to be seen. Works Cited web web inc. htm web than. htm transact.
htm that. htm that. htm Kasiwal, Pari. Development Economics. Cincinnati: South-Western Publishing, 1995. Mankiw, N.
Gregory. Macroeconomics. 4 th ed. New York: Worth, 1992. Muscat, Robert J. Thailand and the United States. New York: Columbia University Press, 1990.
Santiago, Tony. "Thailand Looks to Electronics as Way Out of Slump. " Electronic Engineering Times. 16 August 1999: 28. Sussangkarn, Chalongphob. "Thailand's Debt Crisis and Economic Outlook. " 1998 Regional Conference, ISEAS. Singapore, 16 January 1998. Other References web g 14.
htm g 15. htm g 16. htm g 17. htm web Kunio, Yoshihara. The Rise of Ersatz Capitalism in South-East Asia. New York: Oxford University Press: 1988.
The World Bank. World Development Report 1998 - 99. New York, Oxford University Press: 1999.
Free research essays on topics related to: york oxford university, term debt, interest rates, foreign capital, foreign investment
Research essay sample on York Oxford University Interest Rates
