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Project Funding For Infrastructure Development in Bangkok

Sustainable Growth, Regional Balance, & Social Development for Poverty. Comments of Session I: Growth, Regional Balance and Poverty Reduction. Kanit Sangsubhan, Ph.D. Fiscal Policy Research Institute. Project Funding For Infrastructure Development in Bangkok. Oct 26, 2006

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Project Funding For Infrastructure Development in Bangkok

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  1. Sustainable Growth, Regional Balance, & Social Development for Poverty Comments of Session I: Growth, Regional Balance and Poverty Reduction Kanit Sangsubhan, Ph.D. Fiscal Policy Research Institute Project Funding For Infrastructure Development in Bangkok Oct 26, 2006 Bangkok, THAILAND

  2. Economic Growth in Thailand, Barry Bosworth (2006) Quantity LFS (2.6%) Quality: Education attainment and work experience (0.6%) Table 9: Source of Growth (1977-2004) 75% Gross INV 25% Net INV 25-30% TDRI 22% 51-52% TDRI 61% 16-21% TDRI 16% TDRI (1980-95)

  3. Contribution of Quality of labor Economic Growth in Thailand, Barry Bosworth (2006) Quantity LFS (2.6%) Quality: Education attainment and work experience (0.6%) Table 9: Source of Growth (1977-2004) 75% Gross INV 25% Net INV 25-30% 4-7% 51-52% Each year of schooling +7% productivity Return on schooling average 9% late 1970-80 10% early 1990 9% by 2000 University graduate earn 140% more than elementary Wage differential Men : Woman Declined --10-20% different 16-21% TDRI 10%

  4. Long-term TFP 1.6 % a year of around 6% GDP growth Period after the crisis (1999-04) gain from cyclical component and low investment fall into TFP (16% contribution share) After the crisis (1999-2004) AG: growth contributed mainly by capital input (K:L:TFP =14:68:17) IND: K:L:TFP =34:59:5 SER: contributed mainly by labor input K:L:TFP =63:46:-9 (due to financial sector) Quality of labor contribution share of AG and IND around 5-6 % -- 10% for SER Observations

  5. Thailand’s growth contributed mainly for quantity of K and L inputs Labor quality contribution is low TFP is low Large employed workers in the AG Low productivity in AG (1/5 of non-AG) Gain of aggregate TFP come from relocation of resource among sectors (11%) Main Conclusions Because of the crisis, a large portion of productivity growth loss permanently. Growth resumed new path, lower than the old path (banking, wholesale, retail trade) Thailand no longer has high rate of capital accumulation Problem in financial sector limits the potential output growth Large reserves of labor in AG/facing competition in the low-skilled manufacturing

  6. Suggestion: upgrading skill level of work force Suggestion and Forecast • Forecast: potential growth 5.5-6.8% • 2 % growth of labor force • 0.8-1.2% growth contribution from education and skill improvement • 29.5-33.2 % of gross investment (22% in 2004) • 1-2 % growth of TFP

  7. Under-utilization of Capital 1997 Crisis Potential Cap U Utilization Gap Actual Cap U Source: FPRI

  8. Under-utilization of Capital 1997 Crisis Potential Cap U Actual Cap U Supply Management Demand Management Source: FPRI

  9. Give weight to Macro stability / Reform and Regional Integration View from demand side Strong private consumption Consumption stimulus and residential investment Strong exports Weak investment FDI stronger after the crisis (M&A + restructure into export base) How to revive private investment Continue opening Lowering costs for production Better integrate FDI in domestic economy Support Knowledge and innovation Reform & Recovery, K. Martin, A Kopaiboon, K. Bhaopichr(2006)

  10. Past success of exports Law and regulation reform to encourage private investment Trade policy reform (tariff reduction due to AFTA and others) Trade facilitation External factors (world GDP, regional integration, and China factor) Regional integration in trade and investment EA-FDI to Thailand 25% to 65% (1998-00 and 2001-03) Regional production network – automobiles and electronics Thailand’s trade (export+import) to EA-9 shared 48 % of total trade Can strong export growth continue? Better trade facilitation and investment climate Integrate FDI through Value-addition – Skill, innovation and knowledge Reform & Recovery, K. Martin, A Kopaiboon, K. Bhaopichr(2006)

  11. Fiscal Policy and Development Phases Phase I.:Bubble Phase II.:Deficit to stimulate Demand Phase III: Balance Expenditure Revenue • Supply • Management • Poverty • Quality HR/Social • Competitiveness • Govt. Reform Demand Management Fiscal Deficit Fiscal Finance Fiscal Balance

  12. Refuse to increase tax (VAT to 10%) for fiscal balancebut reduce some specific tax rate to stimulate demand Restoring fiscal discipline – Fiscal Sustainability Plan Fiscal Finance Policy – due to excess liquidity in the financial market and dysfunction of the banking sector Choices: External borrowingvs. Excess liquidity Choices: consumption spendingvs. loan for investment Village fund /People Bank/ SMEs Loan/SML Loan Stimulating the real estate sector (not allow the market price sink to the bottom) TAMC House for civil services, Reduction of transfer fee of real estate Expanding export bases via FTA Key Policies inDemand Management Phase

  13. Before Crisis C/A Deficits Invest in bubble business– instability Economic Crisis Excessive K- flows After Crisis C/A Surplus Less investment / Excess capacity Unsustainable Uncompetitive less K-flows Way forward Value Creation Selective activities • Sufficiency and • Sustainability • Full employment • No- underemployment • HR with quality • NR sustain • Economy sustain • Fiscal Balance • C/A balance • GDP 5 % • Inflation 3 % Economic Capital C/A balance Innovation/KM optimum K-flows Infrastructure Social Capital Training and Education

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