In this webinar, Professor Peter Warr considered the relationships between economic growth, structural change, poverty incidence and income inequality, using data for Thailand covering the period since 1981.
Regional Strategic and Political Studies Programme & Regional Economic Studies Programme Webinar
Thursday, 31 March 2022 – ISEAS – Yusof Ishak Institute hosted a webinar on “Structural change, inequality and poverty reduction in Thailand: Were Kuznets and Krugman right?” delivered by Prof. Peter Warr, John Crawford Professor of Agricultural Economics, Emeritus, Australian National University.
Prof. Warr began the webinar by describing the changes in the structure of the Thai economy since 1951. The growth of real GDP in the agricultural sector was the slowest, with a reversal happening during the Asian Financial Crisis. In terms of share of GDP, the manufacturing sector grew steadily, while the agriculture sector decreased steadily. In terms of employment share, the services sector grew steadily, while the agricultural sector again decreased steadily.
Next, Prof. Warr wanted to know if structural change in Thailand’s economy promoted productivity growth. According to Paul Krugman’s famous articles from 1994, productivity in the long run is very important, and Asia’s per capita growth was due entirely to increases in measured inputs instead of productivity increases. Prof. Warr then distinguished 3 sources of growth of productivity per person: growth of total factor inputs relative to population, growth of factor productivity within each sector, and reallocation of resources from lower-productivity sectors to higher-productivity sectors. The data on productivity in Thailand by sector between 1960 and 2017 showed that the level of productivity of the agricultural sector remained the lowest of the three sectors agriculture, industry and services, but the mean annual growth of agricultural productivity was the highest. The reason is that agricultural output grew, though slowly, but the number of workers in agriculture declined. It turned out that Krugman missed the third source of per capita productivity growth listed above, inter-sector resource allocation, such as workers leaving agriculture, even though it accounted for 45 per cent of overall productivity growth. The reason was that Krugman’s analysis was based on earlier empirical work focused heavily on Singapore and Hong Kong, where the agricultural sector is almost non-existent.
Prof. Warr then shared his findings on income inequality and inclusivity of economic growth in Thailand. On the surface, Thailand’s Gini coefficient seemed first to increase, then to decrease over time, from 0.50 to 0.35, confirming Simon Kuznets’ inverse U-shaped hypothesis. However, the collection of income data for calculating the Gini coefficient likely under-reported the very rich and very poor. Nevertheless, when looking instead at the official data on real income per person, the richest quintile still got the largest share of economic growth. Prof. Warr then showed that the effect that economic growth has on poverty incidence depends heavily on the poverty line that is used in the calculation of poverty.
The webinar concluded with Prof. Warr answering questions posed by the audience, such as the state of labour productivity and competitiveness of the Thai agricultural sector, the direction of economic growth, poverty and income inequality in Thailand, as well as applications of Kuznet’s and Krugman’s ideas to other Asian countries.