Thailand’s development model splutters
Location-based economic development (LED) strategies, defined as government efforts to improve a particular area’s economic and social conditions, were implemented in economically advanced countries long before they were in Thailand.
The embryonic form of LED was established in 1959 under Field Marshall Sarit Thanarat, the prime minister. His strategy focused on improving agricultural production and mitigating the hardships in the Northeast caused by a severe drought that sent migrants to Bangkok.
With financial and technical support from the US government, which had an interest in stemming the influence of communism in Thailand, highways were built to enable the mobilisation of military equipment and personnel into the Northeast.
This also encouraged migration from the Northeast by unskilled labourers to work in Bangkok. Many were able to send remittances back home. It was not until 1964 that regional universities outside Bangkok were founded. Indeed, these laid the groundwork for later LED initiatives in Thailand.
In the 1980s and early 1990s, Thailand made investments in infrastructure and ecosystems to induce foreign direct investment (FDI), such as roads, ports, and export processing zones.
As a result, Thailand did well in attracting FDI, which was an effective driver of economic growth. Greenfield FDI contributed to manufacturing growth in Thailand, while cross-border mergers and acquisitions played a modest role. This economic growth, however, was concentrated in Bangkok, which became increasingly congested and environmentally degraded.
Resolving these problems to make Bangkok more livable would not be economically feasible or politically astute. Therefore, in 1982, the Eastern Seaboard Development Program (ESDP), recommended by Thailand’s Fifth Economic and Social Development Plan, was initiated.
Seen as the national economic development strategy, one of the objectives of the scheme was to divert industrial growth and migration to the three eastern coastal provinces: Chachoengsao, Chon Buri, and Rayong.
Generally, the government considered the ESDP a strategy as a means to stimulate growth. Indeed, GDP growth between 1985 and 1995 indicates the economy grew at an average of 8% per annum.
Nevertheless, there was a counterclaim that national growth did not directly result from the ESDP. Instead, it was accounted for mainly by increased private investment in factories, including those from abroad.
Whatever the proper explanation, national leaders at that time boasted that Thailand was on its way to becoming an economic tiger of Asia, on par with Singapore, South Korea, Taiwan, and Hong Kong. Time shows that Thailand has never caught up with any of the true economic tigers of Asia.
Data from the World Bank indicates that ever since 1995, the economy has been on a downward trajectory. The Asian Financial Crisis of 1997 drove Thailand to a negative growth rate (-2.8%) for the first time, and it hit the bottom (-7.8%) in 1998.
After that, a sluggish recovery trend came to a halt, with another negative growth rate (-6.2%) in 2020. This forced Thailand to look for other LED strategies.
In 2015, Thailand come up with a new LED by designating 10 provinces on the borders of neighbouring countries as special economic zones (SEZs) to promote industrialisation and ease the movement of goods and services.
The provinces selected as the sites of industrial factories were Tak and Kanchanaburi, bordering Myanmar; Chiang Rai, Mukdahan, Nong Khai, and Nakhon Phanom, bordering the Lao People’s Republic; Sa Kaeo and Trat, bordering Cambodia; and Songkhla and Narathiwat, bordering Malaysia.
Even with a high total investment cost of over 22,650 million baht, this project did not have clearly defined operational strategies and so was unsuccessful. Thailand did not receive the anticipated special tariff privileges from the US and EU, forcing SEZ investors to move to neighbouring countries instead.
The failure of SEZs led Thailand to investigate other LED strategies. In this regard, the ESDP was revitalised as the Eastern Economic Corridor (EEC) project, encompassing the same three provinces designated in the ESDP.
The only difference was that the EEC focused on high-value-added industries such as automotive, electronics, robotics, aviation and logistics, biofuels and biochemicals, digital technologies, and medical hubs. It seems Thailand is on the right track. However, ill effects, such as rising respiratory diseases and environmental damage, affect the ESDP and may be of concern in the EEC.
The big question that deserves our analysis is how the LED strategies implemented in Thailand differed from those in other countries?
In Western countries, such as the United States, France, and other European Union countries, this policy focuses on reducing inequality and helping disadvantaged people concentrate in some specific areas.
Moreover, the selection of development sites is based on local economic performance, such as the percentage of GDP per capita below the national average.
For example, India selects areas based on a certain composite score of industrial development.
Meanwhile, Thailand’s ESDP and EEC come under central government agencies, while local governments play a minor role, if any, in implementing LED. Moreover, the selection of sites and strategies were not targeted at economically lagging areas.
The budget for LED in Thailand came largely from national coffers and loans, creating undesirable zero-sum effects for areas outside development zones.
To develop positive sum effects, the government needs to grant autonomy to LGs, which can adopt either outward-looking strategies aiming to attract firms or industries from outside their jurisdictions, inward-looking strategies to retain or expand existing firms, or both.
This would yield untapped benefits of economies of agglomeration, such as knowledge spillovers, shared resources and infrastructure, proximity to customers or markets, responsiveness to the needs of lagging areas, and so on.
Moreover, promoting contiguous local governments to collaborate in their joint endeavours for the well-being of their residents would both sustain and proliferate the economies of agglomeration that have been absent in previous LEDs in Thailand.