1354213161_2009_Economics_Notes

Year Twelve Economics Assessment Task Three

Part One: Research Report

Globalisation and Thailand

Analyse the impact of globalisation on an economy other than Australia and evaluate the strategies that this economy is using to promote economic growth and development.

Introduction

Globalisation refers to the trend of growth in economic integration between nations in recent years. It implies the transpiration of a single global market and is spurred by the reduction and elimination of barriers to trade, investment, technology, finance and labour. The consequences of globalisation are varied and prominent worldwide; Thailand forms one nation subject to such consequences. Newly industrialised, the Thai economy constitutes the second largest and fourth wealthiest economy in South East Asia, in terms of GDP (PPP), US$556.41b (2008), and GDP (per capita), US$8,379.98 (2008), respectively. The nation is thereby a point of stability for the regional economies of Myanmar, Laos and Cambodia. Historically a ‘tiger economy’, the Thai economy is characterised by significant economic growth and a substantial dependence upon exports and foreign investment, constituting 64% and 27% of GDP (2008) respectively. Herewith, one may distinguish the impact of globalisation on the Thai economy and evaluate government policy in promotion of economic growth and development.

The Impact of Globalisation

Economic Growth, Development and Quality of Life

A volatile rate of economic growth forms a feature of the Thai economy of late [see graph(a)]. Yielding an annual average rate of 9.4% real GDP (1985-1996), the Tiger prospered under the expansionary policies of Prime Minister Tinsulanonda. This value thereby plummeted to -10.5% (1998) with the Asian Currency Crisis. Resulting from the imposition of a floating exchange rate system in June 1997, the Crisis forms a consequence of significant dependence upon foreign investment, excessive speculation, unsustainable debt acquisition and fiscal spending, and an ensuing decline in investor confidence; ramifications of globalisation. The nation recovered to 5.33% annual growth in 2002, consequential of Prime Minister Shinawatra’s sponsorship of domestic activity and a declining reliance on foreign trade and investment. However, political turmoil and natural disaster have subdued subsequent rates of growth. The Thai economy entered recession in March 2009, following a 7.1% and 4.2% year-on-year contraction in real GDP in the December 2008 and March 2009 quarters respectively. This stems from a 15.8% fall in gross fixed investment, 16.4% fall in exports and 2.6% fall in private consumption (Q1 2009), prompted by a decline in investor and consumer confidence, adverse international economic conditions and political strife. This concurs with an annual contraction of 3.5% projected by the Thai Ministry of Finance in April 2009.

A trend of improvement in economic development and quality of life may be perceived in terms of a variety of indicators. Real GDP per capita, for example, has extended from US$1,462.00 (1990) to US$2713.00 (2007), indicating an overall rise in material wealth. Thailand’s Human Development Index (HDI), too, proposes an improvement in quality of life, rising from 0.712 (1990) to 0.781 (2005). Finally, the proportion of the population living on or below the national poverty line has declined from 18.0% (1990) to 13.6% (2004), indicating a contraction in the spectrum of the population subject to an inferior quality of life.

Graph (a): Movement in the Economic Growth Rate of Thailand (% real GDP)

Trade, Investment and Transnational Corporations

A multiplicity of trends in trade and investment have distinguished the Thai economy most recently. Pertaining to trade, changes in the value, price, volume, composition and direction of imports and exports are pertinent. Consequential of globalisation and renewed growth, the export and import price, value and volume indices rose considerably between 2000 and 2008 [see table (a)]. This may be attributed to declining barriers to trade, spurred by a political pursuit of trade liberalisation. Latterly, however, prices, values and volumes have plummeted; imports faster exports. The terms of trade thereby improved from 98.00 (Q3 2008) to 101.65 (Q1 2009). An evolution of composition and direction is furthermore indicative of globalisation. Presently, Thailand’s exports base is dominated by machinery (42.3%), manufactures (23.0%) and services (19.2%) directed to ASEAN (22.5%), EU (13.5%) and US (11.4%). Substantial growth in absolute and proportional terms has marked manufactures, chemicals, India and China most recently. Conversely, Thailand’s import base features machinery (31.8%), manufactures (25.1%) and fuels and lubricants (20.8%), sourced from Japan (18.7%), ASEAN (16.8%) and China (11.2%). Fuels and lubricants, manufactures and the markets of ASEAN and China have thrived in absolute and proportional terms of late.

Regarding investment, one must observe movement in the magnitude and direction of net direct and portfolio investment. In 2008, net direct investment was US$7,721.33m, a 67.6% improvement from 2003 and net portfolio investment was -US$2,188.47m, a 796.9% deterioration from 2003; the financial account nevertheless US$14,480.73m, inflated from -US$5,525.00m (2003). This indicates an overall increased inflow of foreign investment succeeding the collapse of investor confidence in 1997-98. Nevertheless, a global downswing has since triggered the deterioration of financial inflow, from a financial account of US$1,112.85m (Q3 2008), to -US$2,859.82m (Q1 2009). Concerning direction, inflows of direct investment were sourced from Japan (31.2%), ASEAN (22.5%) and EU (12.7%), and outflows; ASEAN (54.7%), China (11.4%) and EU (7.9%) in 2008. This aligns with a trend of growth in inflows from ASEAN and China and outflows to ASEAN and EU.

Derived from considerable foreign direct investment, transnational corporations are characteristic of the Thai economy. In 2008, striking developments included; a US$618b investment in the Thai Military Bank by Dutch Internationale Nederlanden Groep and the purchase of a third of the Muang Tollway Company by Australian Babcock and Brown. These developments categorise the sizeable extent of transnational corporations in Thailand.

Table (a): Movements in…