analysis of dependency

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Analysis of Dependency Theory and The case of Thailand Apiyada Seriwatana * Abstract The case of Thailand challenges one conclusion of Dependency Theory that is the penetration of foreigners leads to slow economic growth. Since 1980, that Thai’s export oriented policy became successful, the GDP growth rate of Thailand perform in very well manner. Moreover, this successful goes along with penetration of foreigners in the form of foreign direct investments and grants. Furthermore, Thailand has ability to have control over its policy in order to restrict import and promote domestic industries. We also have evidences to show that Thai exporters diversify export commodity, export market and currency invoice very well. Therefore, they have flexibility in the era that Thailand has to depend on uncertainty of world demand. The case of Thailand not only rejects the Dependency Theory literature but also shows that some of Dependency Theory suggestion such as import substitution policy and decrease in degree of dependent was wrong. Therefore, we can say that as time pass by many economic conditions can be changed. Moreover, for the case of Thailand, we don’t have to worry much about economic growth issue but we have to worry about inequality problem and the weak of institutional sector. * # 5104640049 Undergraduate Student, B.E. International Program, Faculty of Economics, Thammasat University.

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Page 1: Analysis of Dependency

Analysis of Dependency Theory and The case of Thailand

Apiyada Seriwatana *

Abstract

The case of Thailand challenges one conclusion of Dependency Theory that is the penetration of foreigners leads to slow economic growth. Since 1980, that Thai’s export oriented policy became successful, the GDP growth rate of Thailand perform in very well manner. Moreover, this successful goes along with penetration of foreigners in the form of foreign direct investments and grants. Furthermore, Thailand has ability to have control over its policy in order to restrict import and promote domestic industries. We also have evidences to show that Thai exporters diversify export commodity, export market and currency invoice very well. Therefore, they have flexibility in the era that Thailand has to depend on uncertainty of world demand. The case of Thailand not only rejects the Dependency Theory literature but also shows that some of Dependency Theory suggestion such as import substitution policy and decrease in degree of dependent was wrong. Therefore, we can say that as time pass by many economic conditions can be changed. Moreover, for the case of Thailand, we don’t have to worry much about economic growth issue but we have to worry about inequality problem and the weak of institutional sector.

Introduction

During 1950s many Latin America economists developed the theory called Dependency Theory because they see bad economic conditions in that region. For example, income distribution in Latin America was skewed in favor of rich country, 50 percent of population consumed less than 20 percent of total gross national product. Therefore, Dependency Theory was suggested in order to tell the route and the way to solve those problems. In other words, Dependency Theory shows interaction between developed and developing countries.

“In Latin America, reality is undermining the out-dated schema of the international Division of labor, which achieved great importance in the nineteenth century and, as a theoretical concept, continued to exert considerable influence until very recently. Under that schema, the specific task that fell to Latin America, as part of the periphery of the world economic system, was that of producing food and raw materials for the great industrial centres. There was no place within it

* # 5104640049 Undergraduate Student, B.E. International Program, Faculty of Economics,

Thammasat University.

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for the industrialization of the new countries. It is nevertheless being forced upon them by events. Two world wars in single generation and a great economic crisis between them have shown the Latin-American countries their opportunities, clearly pointing the way to industrial activity”

(prebisch 1953)

They created doctrine of periphery that emphasis the structural ties between center (advanced capitalist countries) and periphery (developing countries). They saw that developing countries had to export raw materials in cheap price to the center and then the center would convert all those raw materials to manufactured goods and export back to periphery in expensive price. In addition, wealthy nations actively perpetuated a state of dependence by various means such as politic, banking, education, human resource development etc so industrialized countries can represent their economic interests abroad. They saw interactions between the two tend to not only reinforce but also intensify unequal pattern. Therefore, they saw that periphery has to depend on the center and they still didn’t get good standard of living. Moreover, he viewed that market mechanism is incapable of ensuring a redistribution of income in center and periphery will be equal because market mechanism can’t fight with technology. Although, technology made center and peripheral become closer however, this occurred only in the group of people in upper class level in peripheral countries. Normal citizens that work in industry sector still get low wage due to aggressive competition and the surplus was kept in the form of property and the land is reserved for upper class level. Indeed, they suggested that economic activities that are have been done by the rich countries cause serious economic condition in developing countries.

The major thesis of the dependency theory is that foreign economic penetration leads to slow economic growth in periphery. However, Thailand presents the development theory with paradox. Thailand engaged in capitalism and received massive foreign aid and investment. As a result, Thailand experienced substantial growth and increase in productivity. Moreover, the way to correct the problem suggested by the theory is to use import substitution policy. However, nowadays Thailand applies export promotion policy that’s very contrast to the theory. Another suggestion of the theory is that developing countries should trade among themselves. This also contrasts with Thai economy situation although Thai export market share between ASEAN increases gradually. However, major export markets of Thai exporters are Japan, China and United States of America.

In this paper, firstly, we will present Thai economy background over 3 decades in order to see the apparent success of Thailand. After that we will use literature of the dependency theory that connects between foreign economic dependence and slow economic growth as mechanism to investigate that it’s now working in Thai economy or not.

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Thailand in 20th century

Thailand is considered as fast growing and successful economy although Thailand faced 1997 Asian financial crisis. Previously, Thai economy depended on exporting of agricultural and primary products. However, due to attractiveness of Thai economy conditions that induced foreign direct investment. As a result, Thai export structure has gradually shifted toward more export dependent in manufactured goods especially in automotive and electronic sector. Nowadays, roughly 40% of labors are employed in agricultural sector which accounts only 12% of GDP and only 25% in export earning.

During 1980 – 1985, this is the period of adjustment of Thai economy. This period Thailand faced on average 5 percent growth in GDP per year. At this time, there was oil price hike and world economy recession but Thailand still performed well in term of GDP growth. Therefore, in 1982 Thailand needed structural reform to correct all those past imbalance. Policy reform during 1982 – 1985 created fiscal imbalance, incentive on export and stimulate investment. In 1985, Thailand faced with positive external shock called “Plaza Accords” in which US dollars depreciate a lot. Since US dollar dominated in Thai basket of currency so Thai baht depreciate as well. This induced many foreign firms especially from Japan to invest in Thailand.

During 1986 – 1996, this period is considered as extra ordinary growth or boom period of Thailand. Thailand faced 9 percent GDP growth on average per annum and the growth was mainly generated my manufactured sector. High growth in this period went along with conservative fiscal policy, export promoting, maintaining exchange rate and stable politic atmosphere. This period, Thai exporters were benefited by Plaza Accords. As a result, export oriented policy that had been imposed since 1970 became successful in this era. However, the boom period leads to the boom in real estate sector. Altogether, with the optimistic view toward economic condition that leads to Asian financial crisis afterward.

During 1997 – 2002, this is the period that Thai economy recovered from financial crisis. Thai economy contracted by 1.4 percent in 1997, 10.5 percent in 1998. In turn, Thai economy recovered substantially in 2002 by facing growth rate around 5.4 percent per annum. After financial crisis, Thai economy became export dependent in other word Thai economy is driven by export rather than domestic consumption and investment.

Year 2003 onward, Thai economy has become export dependent in both goods and services which account for 70 percent of GDP. GDP growth increased even more that was 7.1% in 2003 and 6.3% in 2004. However, GDP growth in 2005 – 2007 was 4.9% that was quite moderate due to political unrest, southern region problem. After that in 2008, Thailand experienced world economic downturn due to the action of American bankers. Therefore, economic growth reduced to 2.8% per year in 2008 and reduced further to – 2.3% in 2009. However, Thailand didn’t expose much too those toxic assets because Thailand has already learnt from 1997 crisis and all those assets are too complicated. Therefore, Thailand has high ability to recover when compare to the giant like USA. As a result, Thai GDP growth increased sharply in 2010 to 9.3% per annum.

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Dependency retard economic growth

Many economists who support dependency theory suggested many arguments that why dependency retard economic growth. Therefore, we will apply these arguments whether they are now suitable with Thai economy or not.

1. Frank and Amin suggested that developing countries (dependent countries) suffer from foreign exploitation because when foreign firms get profit they will reinvest it in their countries not reinvest in dependent countries. As a result, resources are limited to generate growth in dependency countries. (Frank 1969, Amin 1974)

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Start from after world war II period, Thai economy received a lot of help from foreigners. Moreover, the money came in the form of grants which is available of fund that there is no repayment required rather than loans. Aid from foreigners came and helped reconstruct and improve Thai’s military sector and also infrastructure system such as road, irrigation, training etc. Furthermore, Thailand keep getting grants from foreigners until now and the trend of grants keep increasing although it was decreased during 1990 to 2002. As we know that, infrastructure and human capital are the major source of country growth in the future. Therefore, by having all these grants from foreigners, Thailand will have strong foundation for country growth and this shows that foreigners don’t intend to exploit Thailand.

Now let focus the trend of foreign direct investment in Thailand. Early 1980 the amount of FDI in Thailand is very small however, after 1987 FDI increased substantially altogether with appreciation of Japanese Yen and rise in labor cost. Therefore, many foreign firms relocated their factory to Thailand and many developing countries. Nevertheless, amount of FDI declined in 1990 to 1995 due to insufficient infrastructure and human resources. After 1997, or post Asian currency crisis FDI came in form of merger and acquisition of financial institution. When the economy is settle down most of FDI came into Thailand mostly from Japan and to Thai industrial sector. Thailand experienced increasing

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trend of FDI however FDI dropped from 2006 to 2010 because we they all face global economic downturn and also the rise in economy, cheap labor and lots of population in China also attract foreigners to invest there instead. When we look the trend of GDP it has the same trend as FDI. This can imply that FDI generates growth to Thailand because coming of foreign firms generate employment and economic activities in Thailand. Moreover, foreign firms operate more efficiently than local firms.

Since the more number of FDI indicates the more Thailand depends on foreigners. This can give you the result that Thailand is better from the dependency on developed countries.

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1980 1985 1990 1995 2000 2005 2010

FDI (Million dollars)

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GDP (Billion of baht)

For the repatriation issue, whether firms will reinvest their profit in Thailand or send all their profit back to home countries depends on many factors such as rate growth of GDP in home and host countries moreover, favorable economic conditions in host countries also encourage reinvestment opportunity and profit level of foreign firm in Thailand as well.

According to the theory, a sustained depreciation of host’s country’s currency can be expected to discourage repatriation (Lundan 2006). Since Thailand use managed float system so Bank of Thailand can intervene exchange rate market. Moreover, Thailand uses export led growth policy so Bank of

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Thailand keeps maintaining baht weak for exporters. Although baht keep appreciating since 2010 but Bank of Thailand intervenes hardly in order to keep baht as weak as possible. Although Thai baht appreciate, when compare to our competitor such as Vietnam, Thai baht still be in good position. Sustained depreciation implies both certainty and the cheap of export. As a result, foreign firms have incentive to reinvest in Thailand.

Moreover, Hall and Soskice (2001) suggested that firm in liberal market economy, the economy that has flexible labor market and high stock market capitalization which concern more about short term financial performance and equity value will eager to repatriate earning back to home countries. While coordinated economies or bank base economy will have more opportunity to reinvest in that country. Since Thailand is still bank base economy because the cost of initial public offering is very high and transparency is required hence, only big Thai firms can do this. For bond issuing, only well performance and recognized firms can issue.

The third factor is tax incentive and special privileges offered by Thailand. Thailand is still in developing process so Thailand needs lots of foreign capital, technology and managerial skill in order to achieve development goals. Therefore, Thailand gives tax and also special privileges to foreign firms such as guarantee for repatriation of investment and profit, relax the regulation for admission, regional incentive etc.

In conclusion, according to above 3 factors and also favorable economics condition in Thailand such as good infrastructure when compare to our neighbor countries, abundant of natural resources, low labor cost, geographical issue etc foreign firms has incentive to reinvest their money in Thailand and transfer some of their profits back to their home countries.

2. Due to dependency domestic market will have lots of imported consumer goods. However, export from dependent countries is harmed by instability of global demand and prices. As a result, dependent countries will face with trade deficits, growing indebtedness and less capital to invest to drive economic growth. (Prebisch 1950, Amin 1974)

According to above argument, it seems that there are many arguments combine. For simplicity, we can separate it into 2 claims.

1. Dependency countries don’t have enough power to control their economy in the way of restricting import.

2. Because dependency countries’ income depends on unstable export market therefore dependency countries can’t perform accurate planning and hence can’t compete with developed countries.

After Second World War, Thailand implemented import substitution policy because at that time there were very small manufacturing plants located in Bangkok. Therefore, Thailand wanted to protect its industries by using imported substitution policy. Moreover, Thailand needed big amount of money in order to renovate country after the war so import substitution policy would save foreign exchange import expenditure. During import substitution period after the Second

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World War, the evidences suggested that Thailand experienced steady and stable growth in GDP.

However in 1970s, Thai policy makers saw the adverse effects of imported substitution policy therefore, Thailand changed from imported substitution policy to export oriented policy. Although this new policy didn’t success in the first period but in mid 1980s after “Plaza Accords” Thailand faced with turning point due to favorable economic conditions such as macroeconomic stability, low budget deficit, cheap labor. All of these factors induced foreign firms to come into Thailand and hence support Thai’s export oriented policy. The evidences suggested that even world economy downturn in 1980s, Thailand still faced with steady and stable economics growth and the rate of manufactured export grew substantially. The fact, confirmed that though Thailand used export oriented policy, Thailand still depended on import. However, this wasn’t the same as suggested by Dependency Theory because in the case Thailand growth of consume goods import grows just a little bit that contrast to the growth in import of capital and machinery which is increase substantially. Therefore, Thailand applied import promotion along with export led growth policy.

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For current account deficit issue, since Thailand use import promotion of capital together with export led growth policy so it isn’t weird that Thailand will experience current account deficit. The evidences tell us that during economic upturn Thailand will experience current account deficit and experience current account surplus during economic downturn because entrepreneurs have money and see potential of economy to generate profit for their firms. As a result, they import more on raw materials and machinery in order to increase their productivity and improve efficiency.

Therefore, argument that dependency countries don’t have enough power to control their economy in the way of restricting import can’t be applied to Thai economy structure. As we can see from the development of Thai’s trade policy that at first we use import substitution policy, by using this policy we can restrict number of import goods in order to promote and protect our local industries that are very small and young. When time pass by when policy makers realize that import substitution policy has adverse effects and doesn’t suit with Thai economy anymore so they change to export oriented policy. However, they see that only promoting export is not enough. As a result, Thailand chooses to use import promotion along with export led growth policy. We will see that Thailand has autonomy over its trade policy though Thailand in the recent period has a lot of foreign direct investment or in other word Thailand depends highly on foreign firms.

Let move to claim number two, since dependency countries’ income depends on export revenue that subjects to uncertainty of world economic conditions so dependency countries can’t predict and plan their economy accurately and then leads to low economic growth.

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96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Thai export growth(%)Thai gdp growth(%)EU gdp growth(%)USA gdp growth(%)

Since Thailand shifted their policy toward export oriented the share of agricultural sector export keeps declining in contrast with the share of

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manufactured export that keeps increasing. As we can see from the above graph that when Thai export growth increases, Thai GDP growth tends to increase as well. For example, after Asian Financial Crisis or around 1998 Thai GDP growth dropped to negative level however, when Thailand increased export and used it as engine of growth, Thailand faced V-shape recovery of GDP. Moreover, during 2008 – 2009 that we have world economic downturn problem, Thai export growth decreased substantially altogether with the decrease in Thai GDP growth. However, USA and EU (15 countries)1 faced with negative GDP growth as well and the rate was higher than Thailand. In this case we use USA and European Union (15 countries) as proxy of developed countries. Therefore, we can conclude that although Thailand has shifted their export structure toward manufactured goods that are very sensitive to business cycle, during economic downturn Thailand as well as developed countries also faces with negative GDP growth. As a result, level of export and the degree that country exposes to the world economy condition isn’t the only one factor that explains Thai economy growth. We have to look at other internal and external factors as well.

Moreover, if we focus on the exporter side, we will see that Thai exporters have high ability in adjusting themselves to world economy condition or new challenges because Thai exports are well diversified in many ways.

Firstly, Thailand is well diversified in exported product. This conclusion

can be gotten from Export Commodity Concentration index (C)2 which equals where Xi is export value of goods i, X is the total export of the

country and C is the number between 0 and 1. The country will be said as well diversified if C is closed to 0. For Thailand case, according to Bank of Thailand calculation in 2007, C = 0.193 and C = 0.183 in 2008 and C = 0.188 in 2010. We will see that this number will cluster in the range of [0.18,0.2]. Therefore, Thailand export sector has flexibility for competition in the world market.

Secondly, Thailand has well market diversification. Thai exporters are active in finding new market.

1 European Union 15 countries consist of Austria, Belgium, Denmark, Finland, France, Germany,

Greece, Ireland, Italy, Luxembourge, Netherlands, Portugal, Italy, Spain, Sweden and United Kingdom.2 See 2010 Inflation report by Bank of Thailand.

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.00

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Export share to ASEANExport share to EUEaport share ti JapanExport share to middle eastExport share to USA

From the graph the share of export to middle east is relatively low and quite constant when compare to other markets. According to the statistic, Thailand decreases its degree of dependent on European Union, USA and Japan export market and diversifies Thai export market toward ASEAN market. Moreover, we see the change in export market concentration index3. The value of the index in 2000 is 0.299 and it decreases to 0.246 in 2007.

Finally, Thailand is well diversified in export invoice currency that is formerly US dollar was dominated in Thai export invoice or order. US dollar was accounted for 96% of export receipt in 1996 and the trend keeps declining overtime until now 2010 US dollar accounted for 76% of all export receipt. This helps alleviating the impact of US dollar depreciation even though the dollar depreciate but Thai’s export revenue won’t be fluctuate that much as before.

From all these reasons above, dependency theory isn’t now working on Thai economy because Thailand uses export led growth policy and still faces with good GDP growth. Moreover, we have evidences to show that Thailand has good ability in adjusting itself to world economy conditions. In my opinion, not only export that are the major reasons for economic growth we have to consider other countries economic condition and also our fundamental factors such as macroeconomics policy, infrastructure, human capital investment etc. as well.

3. Penetration of foreigners into dependent countries will make the developing countries remain weak and cannot play important role in protecting domestic industry. As a result, developing countries’ economic growth is fostered. (Galtung 1971, Hensman 1971, Rubinson 1977)

3 Export market concentration index uses same formula as Export commodity concentration index.

However, Xi in this sense means export value from Thailand to country i.

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In order to see whether Thailand has ability to control its domestic industry or not, I will focus on Thailand structure of tariff and non tariff barrier of trade and compare it with developed countries as well as some of ASEAN countries.

Tariff Structure of Thailand    1999 2001 2003 2006 2008

1 Bound tariff lines (% of all tariff lines) 71.6 72.1 73.7 74.7 73.72 Simple average applied rate 17 15 13 11.9 11

  Agricultural products (HS01-24) 32.7 26 25.3 25.3 25.2  Industrial products (HS25-97) 14.6 13.1 11 10 8.7  WTO agricultural products 33.1 26.3 25 25 25  WTO non-agricultural products 14.1 13.1 11.2 10 8.8  Textiles and clothing 24.7 22.5 18.6 16.4 14.7

3 Tariff quotas (% of all tariff lines) 0.9 1 1 1 1

4Overall standard deviation of tariff rates 16.3 13.6 14.3 14 14

6Duty free tariff lines (% of all tariff lines) 3.5 4.1 4.1 4.1 18.5

7Non-ad valorem tariffs (% of all tariff lines) 21.5 23.1 23.1 22.5 22.5

8Non-ad valorem tariffs with no AVEs (% of all tariff lines) 20.8 22.1 20.3 22 19.9

Source: WTO trade policy review (Thailand) 2008

Thailand import tariff structure is based on origin and category of products. Moreover, tariff structure of Thailand is very complex. According to the table, Thailand mostly imposes tariff in the form of ad valorem basis. Moreover, the tariff on agricultural product is higher than non agricultural product. Furthermore, tariff applies on final products is higher than tariff applies on primary or intermediate goods. Therefore, the more the product is passed through production process the more the tariff will be imposed on. This structure of tariff supports Thai’s industry that is import only raw material and capital then build it in Thailand. However, Thailand gives tariff exemption to member of ASEAN and some countries that sign free trade area agreement with Thailand such as Australia, USA, New Zealand etc. Besides from tariff protection, Thailand also has non tariff barrier such as quantitative restriction, non-automatic licensing, custom barrier etc.

Summary of Tariff structure for year 2008

  Thailand EUAustrali

aMalaysi

aBrune

iBound tariff lines (% of all tariff lines) 73.7 100 96.5 80.6 92.8

Simple average applied rate 11 6.7 3.1 7.4 4.8 Agricultural products (HS01-24) 25.2 9.3 1.4 2.7 0

Industrial products (HS25-97) 8.7 4.1 3.4 8 5.4

Tariff quotas (% of all tariff lines) 1 4.8 - 0.2 0Overall standard deviation of tariff rates 14 14.1 6.5 11.5 8.1

Duty free tariff lines (% of all tariff 18.5 25.3 46.2 60.3 68.1

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lines)Non-ad valorem tariffs (% of all tariff lines) 22.5 10.1 0.3 0.8 1.2

Non-ad valorem tariffs with no AVEs (% of all tariff lines) 19.9 2.7 - 0.8 1.2

Source: WTO trade policy review

Thailand bound 73.7 percent of all tariff line and mostly applied on fresh and processed food. From the summary table when compare simple average applied rate, we will see that Thailand has the highest value. As a result, Thailand magnitude of protection is the highest especially in agricultural and automotive sector. Moreover, from the table overall standard deviation of Thailand is the highest. The higher the overall standard deviation suggests that there is greater chance that consumers and producers will be distorted by tariff structure. Since Thailand imposes high tariff on fresh and processed food so it’s hard for foreign firm to penetrate Thai market. According to summary table, we can conclude that when compare Thailand with ASEAN countries the rate and magnitude of protection is high and Thailand mainly uses tariff as a tool for protection.

Although Thailand has high rate of protection, Thailand trade policy has gradually shifted toward trade liberalization in order to improve competitiveness and alleviate poverty problem. That is Thailand wants to strengthen domestic economy by integrating Thai economy to the world through expanding bilateral trade agreement with many countries and also be member of WTO. Therefore, Thailand reduces tariff, duty and non tariff barrier on selected imported products especially raw material and machine. However, Thailand still puts high protection in agricultural sector via tariff barrier, non tariff barrier and also condition in Uruguay round negotiation.

Finally, according to the above evidences, Thailand has ability to protect its local industries through trade barriers. However, Thailand chooses to reduce the magnitude of trade barrier in order to integrate Thai economy into global market by reducing both tariff and non tariff barrier. Therefore, it doesn’t mean that if one country can control its local industry, that country will have high economic growth. Moreover, trade liberalization or reduction in local industry isn’t always bad. Trade liberalization makes country expose to the larger market size and then exploits economy of scale. Moreover, high competition makes domestic industries improve themselves in order to compete in world market. Too much protection isn’t good, that industry will remain like an infant forever. There are many factors that drive countries’ economic growth. Trade protection is one of that issue, however government should put too much protection on domestic industries. Therefore, the argument suggested by Dependency Theory that penetration of foreigners into developing countries will make developing countries remain weak and can’t protect its local industry is now not true for the case of Thailand.

Conclusion

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From above analysis, we have reasons to support that dependency theory doesn’t slow the growth rate of Thailand. The overall findings can be concluded as follows.

Firstly, we raise the argument from Dependency Theory that developing countries suffer from the penetration of developed countries because once they get profit they will bring it all back to their home countries. Therefore, developing countries don’t have resources to led economy grow. This argument is rejected for Thailand case. As time pass by, Thailand has become more and more rely on foreign direct investment to support Thai export led growth policy. However, Thailand experiences good trend of economic growth when compare to many countries as well as the giant like USA in 2008 world economic downturn. This is because Thailand has favorable economics condition such as cheap labor, abundant of resources, good trend of GDP growth, certainty of exchange rate, bank base economy and many privileges given by BOI in order to attract foreign direct investment.

Secondly, Dependency Theory suggests that dependent countries don’t autonomy to control their economy in the way of restricting import. For the case of Thailand, this argument isn’t true. Thailand has autonomy in setting their economic policy. At first, Thailand restricted import by using imported substitution policy in order to promote domestic industry. However, after realization of adverse effect of import substitution policy, Thailand changed the policy to export oriented altogether with import promotion. The second claim from this argument is because income of developing countries is mainly gotten from export so that developing countries have to depend on uncertain world economic condition. As a result, developing countries can’t plan their economic accurately then leads to slow economic growth. This is not true for the case of Thailand. According to empirical evidence, Thailand uses export orient policy, Thai’s GDP growth remains in good position. After Asian Financial crisis, Thailand used export led growth policy and then Thailand experienced share recovery (V-shape). Moreover, in 2008 the year of global economic downturn so many countries experienced negative GDP growth. The evidences show that the magnitude of negative GDP growth of Thailand is smaller than developed countries like USA and European Union. Moreover, Thai exporters perform well in diversifying their export product, market and invoice currency. As a result, Thailand export side has enough flexibility to cope with uncertainty of world demand.

The last argument said that due to the penetration of foreigners so developing countries don’t have power to protect its local industry and then foster economic growth. For the case of Thailand, we have evidences to support that tariff and non tariff barrier of Thailand is strong enough to protect local industries especially in agricultural and automotive sector. However, Thailand has gradually shifted trade policy toward trade liberalization by reducing tariff and non tariff barrier via signing trade agreement with many countries. Trade liberalization will help supporting Thai economy through exploitation of larger size of market and efficiency improvement due to high competition. Therefore, we conclude that this argument isn’t true for Thailand case. Moreover, too much local industry protection isn’t always good and doesn’t guarantee that countries will achieve high economic growth.

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Dependency Theory isn’t true for Thailand case because it was around 50 years since the theory had been created to the current era. Fifty years is long enough for the change in economy structure to be happened. For example, nowadays although USA is still rich and high power country, economic activities has been shifted more toward Asia. China becomes dominant country that has high economic activity concentration. Furthermore, sub prime crisis in USA and also sovereign debt problem in European zone that take lone time to recover so image of EU and USA is deteriorated. As a result, many investors shift their investment to Asia or emerging market instead because they see growth potential in this continent. In the time that Dependency Theory was published China and emerging market are still down under when compare to the giant like USA. Therefore, it’s not wired that those economists would suggest Dependency Theory. However, in 2011 era the giants are weak and have sign of slow recovery due to the complicated things that they create.

Another reason to defend that Dependency Theory is now not suitable with Thailand is that the growth of one particular country doesn’t depend solely on the degree of penetration of foreigners, ability to protect local industry, degree of exposure to international market etc. However, it also depends on internal factor as well. For example, suitable macroeconomic policy, development in infrastructure, development in human capital, good institutional sector etc.

From the above analysis, the penetration of developed countries into Thailand doesn’t retard Thai economic growth. Hence, we don’t have to worry much about the rate of GDP growth because at the same time of having good trend of economic growth Thailand still has many internal problems. Firstly, although Thailand experiences good trend of economic growth, income inequality between agricultural and non agricultural sector, people class and region increase substantially. Secondly, Thailand faces the problem of shortage of skilled labor. Thirdly, since Thailand promotes more in industrial sector so Thailand faces with resources depletion and environmental problem. Finally, the major problem of Thailand is arisen from institutional sector. Since there is a linkage between Thai economy and Thai politic and Thailand has high degree of corruption. Hence, politicians will abuse their power and give privileges to their own business. Moreover, high degree of polarization in politic therefore, policy dead lock will be occurred. As a result, Thailand should develop or solve the problems of internal sector altogether with the exploitation of the larger size of international market and the help from foreigners in order to achieve high economic growth. In other word, dual track approach should be applied so domestic stimulus policy should be promoted along the line of open market policy.

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