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 e"port oriented policy became successful the #D$ growth rate of
Thailand perform in %ery well manner. &oreo%er this successful goes along with
penetration of foreigners in the form of foreign direct in%estments and grants.
'urthermore Thailand has ability to ha%e control o%er its policy in order to restrict
import and promote domestic industries. (e also ha%e e%idences to show that
Thai e"porters di%ersify e"port commodity e"port mar)et and currency in%oice
%ery well. Therefore they ha%e fle"ibility in the era that Thailand has to depend
on uncertainty of world demand. The case of Thailand not only re*ects 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. &oreo%er for the case of Thailand we don!t ha%e to worry much
about economic growth issue but we ha%e to worry about ine+uality problem and
the wea) of institutional sector.
Introduction
During 19,0s many -atin America economists de%eloped the theory called
Dependency Theory because they see bad economic conditions in that region. 'or
e"ample income distribution in -atin America was s)ewed in fa%or of rich
country ,0 percent of population consumed less than .0 percent of total gross
national product. Therefore Dependency Theory was suggested in order to tell
the route and the way to sol%e those problems. /n other words Dependency
Theory shows interaction between de%eloped and de%eloping 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. nder that schema, the specific tas! 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. "here was no place within it
*
0 ,101210019 3ndergraduate Student 4.5. /nternational $rogram 'aculty of 5conomics
Thammasat 3ni%ersity.
for the industriali#ation of the new countries. It is nevertheless being forced upon
them by events. "wo world wars in single generation and a great economic crisis
between them have shown the Latin-American countries their opportunities,
clearly pointing the way to industrial activity$
%prebisch &'()*
They created doctrine of periphery that emphasis the structural ties between
center 6ad%anced capitalist countries7 and periphery 6de%eloping countries7. They
saw that de%eloping countries had to e"port raw materials in cheap price to the
center and then the center would con%ert all those raw materials to manufactured
goods and e"port bac) to periphery in e"pensi%e price. /n addition wealthy
nations acti%ely perpetuated a state of dependence by %arious means such as
politic ban)ing education human resource de%elopment etc so industriali8ed
countries can represent their economic interests abroad. They saw interactions
between the two tend to not only reinforce but also intensify une+ual pattern.
Therefore they saw that periphery has to depend on the center and they still didn!t
get good standard of li%ing. &oreo%er he %iewed that mar)et mechanism is
incapable of ensuring a redistribution of income in center and periphery will be
e+ual because mar)et mechanism can!t fight with technology. Although
technology made center and peripheral become closer howe%er this occurred only
in the group of people in upper class le%el in peripheral countries. 9ormal citi8ens
that wor) in industry sector still get low wage due to aggressi%e competition and
the surplus was )ept in the form of property and the land is reser%ed for upper
class le%el. /ndeed they suggested that economic acti%ities that are ha%e been
done by the rich countries cause serious economic condition in de%eloping
countries.
The ma*or thesis of the dependency theory is that foreign economic
penetration leads to slow economic growth in periphery. :owe%er Thailand
presents the de%elopment theory with parado". Thailand engaged in capitalism
and recei%ed massi%e foreign aid and in%estment. As a result Thailand
e"perienced substantial growth and increase in producti%ity. &oreo%er the way to
correct the problem suggested by the theory is to use import substitution policy.
:owe%er nowadays Thailand applies e"port promotion policy that!s %ery contrast
to the theory. Another suggestion of the theory is that de%eloping countries should
trade among themsel%es. This also contrasts with Thai economy situation
although Thai e"port mar)et share between AS5A9 increases gradually.
:owe%er ma*or e"port mar)ets of Thai e"porters are ;apan <hina and 3nited
States of America.
/n this paper firstly we will present Thai economy bac)ground o%er =
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 in%estigate that it!s now
wor)ing in Thai economy or not.
Thailand in 20
th
century
Thailand is considered as fast growing and successful economy although
Thailand faced 199> Asian financial crisis. $re%iously Thai economy depended
on e"porting of agricultural and primary products. :owe%er due to attracti%eness
of Thai economy conditions that induced foreign direct in%estment. As a result
Thai e"port structure has gradually shifted toward more e"port dependent in
manufactured goods especially in automoti%e and electronic sector. 9owadays
roughly 10? of labors are employed in agricultural sector which accounts only
1.? of #D$ and only .,? in e"port earning.
During 1980 @ 198, this is the period of ad*ustment of Thai economy.
This period Thailand faced on a%erage , percent growth in #D$ per year. At this
time there was oil price hi)e and world economy recession but Thailand still
performed well in term of #D$ growth. Therefore in 198. Thailand needed
structural reform to correct all those past imbalance. $olicy reform during 198. @
198, created fiscal imbalance incenti%e on e"port and stimulate in%estment. /n
198, Thailand faced with positi%e e"ternal shoc) called A$la8a AccordsB in which
3S dollars depreciate a lot. Since 3S dollar dominated in Thai bas)et of currency
so Thai baht depreciate as well. This induced many foreign firms especially from
;apan to in%est in Thailand.
During 1982 @ 1992 this period is considered as e"tra ordinary growth or
boom period of Thailand. Thailand faced 9 percent #D$ growth on a%erage per
annum and the growth was mainly generated my manufactured sector. :igh
growth in this period went along with conser%ati%e fiscal policy e"port promoting
maintaining e"change rate and stable politic atmosphere. This period Thai
e"porters were benefited by $la8a Accords. As a result e"port oriented policy that
had been imposed since 19>0 became successful in this era. :owe%er the boom
period leads to the boom in real estate sector. Altogether with the optimistic %iew
toward economic condition that leads to Asian financial crisis afterward.
During 199> @ .00. this is the period that Thai economy reco%ered from
financial crisis. Thai economy contracted by 1.1 percent in 199> 10., percent in
1998. /n turn Thai economy reco%ered substantially in .00. by facing growth
rate around ,.1 percent per annum. After financial crisis Thai economy became
e"port dependent in other word Thai economy is dri%en by e"port rather than
domestic consumption and in%estment.
Cear .00= onward Thai economy has become e"port dependent in both
goods and ser%ices which account for >0 percent of #D$. #D$ growth increased
e%en more that was >.1? in .00= and 2.=? in .001. :owe%er #D$ growth in
.00, @ .00> was 1.9? that was +uite moderate due to political unrest southern
region problem. After that in .008 Thailand e"perienced world economic
downturn due to the action of American ban)ers. Therefore economic growth
reduced to ..8? per year in .008 and reduced further to @ ..=? in .009.
:owe%er Thailand didn!t e"pose much too those to"ic assets because Thailand
has already learnt from 199> crisis and all those assets are too complicated.
Therefore Thailand has high ability to reco%er when compare to the giant li)e
3SA. As a result Thai #D$ growth increased sharply in .010 to 9.=? per annum.
Dependency retard economic growth
&any 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 e"ploitation #ecause 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 1%&%$ Amin 1%'(!
0
40
80
120
160
200
1970 1975 1980 1985 1990 1995 2000 2005
grant (million dollars)
Start from after world war // period Thai economy recei%ed a lot of help
from foreigners. &oreo%er the money came in the form of grants which is
a%ailable of fund that there is no repayment re+uired rather than loans. Aid from
foreigners came and helped reconstruct and impro%e Thai!s military sector and
also infrastructure system such as road irrigation training etc. 'urthermore
Thailand )eep getting grants from foreigners until now and the trend of grants
)eep increasing although it was decreased during 1990 to .00.. As we )now that
infrastructure and human capital are the ma*or source of country growth in the
future. Therefore by ha%ing all these grants from foreigners Thailand will ha%e
strong foundation for country growth and this shows that foreigners don!t intend to
e"ploit Thailand.
9ow let focus the trend of foreign direct in%estment in Thailand. 5arly
1980 the amount of 'D/ in Thailand is %ery small howe%er after 198> 'D/
increased substantially altogether with appreciation of ;apanese Cen and rise in
labor cost. Therefore many foreign firms relocated their factory to Thailand and
many de%eloping countries. 9e%ertheless amount of 'D/ declined in 1990 to
199, due to insufficient infrastructure and human resources. After 199> or post
Asian currency crisis 'D/ came in form of merger and ac+uisition of financial
institution. (hen the economy is settle down most of 'D/ came into Thailand
mostly from ;apan and to Thai industrial sector. Thailand e"perienced increasing
trend of 'D/ howe%er 'D/ dropped from .002 to .010 because we they all face
global economic downturn and also the rise in economy cheap labor and lots of
population in <hina also attract foreigners to in%est there instead.
(hen we loo) the trend of #D$ it has the same trend as 'D/. This can
imply that 'D/ generates growth to Thailand because coming of foreign firms
generate employment and economic acti%ities in Thailand. &oreo%er foreign
firms operate more efficiently than local firms.
Since the more number of 'D/ indicates the more Thailand depends on
foreigners. This can gi%e you the result that Thailand is better from the
dependency on de%eloped countries.
0
2000
4000
6000
8000
10000
12000
1980 1985 1990 1995 2000 2005 2010
FDI (Million dollars)
0
1000
2000
3000
4000
5000
1980 1985 1990 1995 2000 2005 2010
GDP (Billion o !a"t)
'or the repatriation issue whether firms will rein%est their profit in
Thailand or send all their profit bac) to home countries depends on many factors
such as rate growth of #D$ in home and host countries moreo%er fa%orable
economic conditions in host countries also encourage rein%estment opportunity
and profit le%el of foreign firm in Thailand as well.
According to the theory a sustained depreciation of host!s country!s
currency can be e"pected to discourage repatriation 6-undan .0027. Since
Thailand use managed float system so 4an) of Thailand can inter%ene e"change
rate mar)et. &oreo%er Thailand uses e"port led growth policy so 4an) of
Thailand )eeps maintaining baht wea) for e"porters. Although baht )eep
appreciating since .010 but 4an) of Thailand inter%enes hardly in order to )eep
baht as wea) as possible. Although Thai baht appreciate when compare to our
competitor such as Dietnam Thai baht still be in good position. Sustained
depreciation implies both certainty and the cheap of e"port. As a result foreign
firms ha%e incenti%e to rein%est in Thailand.
&oreo%er :all and Sos)ice 6.0017 suggested that firm in liberal mar)et
economy the economy that has fle"ible labor mar)et and high stoc) mar)et
capitali8ation which concern more about short term financial performance and
e+uity %alue will eager to repatriate earning bac) to home countries. (hile
coordinated economies or ban) base economy will ha%e more opportunity to
rein%est in that country. Since Thailand is still ban) base economy because the
cost of initial public offering is %ery high and transparency is re+uired hence only
big Thai firms can do this. 'or bond issuing only well performance and
recogni8ed firms can issue.
The third factor is ta" incenti%e and special pri%ileges offered by Thailand.
Thailand is still in de%eloping process so Thailand needs lots of foreign capital
technology and managerial s)ill in order to achie%e de%elopment goals.
Therefore Thailand gi%es ta" and also special pri%ileges to foreign firms such as
guarantee for repatriation of in%estment and profit rela" the regulation for
admission regional incenti%e etc.
/n conclusion according to abo%e = factors and also fa%orable 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 incenti%e to rein%est their money in Thailand and transfer some
of their profits bac) to their home countries.
2. Due to dependency domestic market will have lots of imported consumer
goods. )owever$ e"port from dependent countries is harmed #y insta#ility of
glo#al demand and prices. As a result$ dependent countries will face with
trade deficits$ growing inde#tedness and less capital to invest to drive
economic growth. *re#isch 1%+0$ Amin 1%'(!
According to abo%e argument it seems that there are many arguments
combine. 'or simplicity we can separate it into . claims.
1. Dependency countries don!t ha%e enough power to control their economy
in the way of restricting import.
.. 4ecause dependency countries! income depends on unstable e"port mar)et
therefore dependency countries can!t perform accurate planning and hence
can!t compete with de%eloped countries.
After Second (orld (ar Thailand implemented import substitution policy
because at that time there were %ery small manufacturing plants located in
4ang)o). Therefore Thailand wanted to protect its industries by using imported
substitution policy. &oreo%er Thailand needed big amount of money in order to
reno%ate country after the war so import substitution policy would sa%e foreign
e"change import e"penditure. During import substitution period after the Second
(orld (ar the e%idences suggested that Thailand e"perienced steady and stable
growth in #D$.
:owe%er in 19>0s Thai policy ma)ers saw the ad%erse effects of imported
substitution policy therefore Thailand changed from imported substitution policy
to e"port oriented policy. Although this new policy didn!t success in the first
period but in mid 1980s after A$la8a AccordsB Thailand faced with turning point
due to fa%orable 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 e"port oriented policy. The e%idences
suggested that e%en world economy downturn in 1980s Thailand still faced with
steady and stable economics growth and the rate of manufactured e"port grew
substantially.
The fact confirmed that though Thailand used e"port oriented policy
Thailand still depended on import. :owe%er this wasn!t the same as suggested by
Dependency Theory because in the case Thailand growth of consume goods
import grows *ust 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 e"port led growth policy.
#40
#20
0
20
40
60
80
1985 1990 1995 2000 2005 2010
$%rr&nt a$$o%nt (!illion na't)
#15
#10
#5
0
5
10
15
1985 1990 1995 2000 2005 2010
gd( gro)t"(*)
'or current account deficit issue since Thailand use import promotion of
capital together with e"port led growth policy so it isn!t weird that Thailand will
e"perience current account deficit. The e%idences tell us that during economic
upturn Thailand will e"perience current account deficit and e"perience current
account surplus during economic downturn because entrepreneurs ha%e 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 producti%ity
and impro%e efficiency.
Therefore argument that dependency countries don!t ha%e 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 de%elopment 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 %ery small and young. (hen time pass by when policy ma)ers reali8e that
import substitution policy has ad%erse effects and doesn!t suit with Thai economy
anymore so they change to e"port oriented policy. :owe%er they see that only
promoting e"port is not enough. As a result Thailand chooses to use import
promotion along with e"port led growth policy. (e will see that Thailand has
autonomy o%er its trade policy though Thailand in the recent period has a lot of
foreign direct in%estment or in other word Thailand depends highly on foreign
firms.
-et mo%e to claim number two since dependency countries! income
depends on e"port re%enue that sub*ects to uncertainty of world economic
conditions so dependency countries can!t predict and plan their economy
accurately and then leads to low economic growth.
#20
#10
0
10
20
30
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
+"ai &,(ort gro)t"(*)
+"ai gd( gro)t"(*)
-. gd( gro)t"(*)
./0 gd( gro)t"(*)
Since Thailand shifted their policy toward e"port oriented the share of
agricultural sector e"port )eeps declining in contrast with the share of
manufactured e"port that )eeps increasing. As we can see from the abo%e graph
that when Thai e"port growth increases Thai #D$ growth tends to increase as
well. 'or e"ample after Asian 'inancial <risis or around 1998 Thai #D$ growth
dropped to negati%e le%el howe%er when Thailand increased e"port and used it as
engine of growth Thailand faced DEshape reco%ery of #D$. &oreo%er during
.008 @ .009 that we ha%e world economic downturn problem Thai e"port growth
decreased substantially altogether with the decrease in Thai #D$ growth.
:owe%er 3SA and 53 61, countries7
1
faced with negati%e #D$ growth as well
and the rate was higher than Thailand. /n this case we use 3SA and 5uropean
3nion 61, countries7 as pro"y of de%eloped countries. Therefore we can conclude
that although Thailand has shifted their e"port structure toward manufactured
goods that are %ery sensiti%e to business cycle during economic downturn
Thailand as well as de%eloped countries also faces with negati%e #D$ growth. As
a result le%el of e"port and the degree that country e"poses to the world economy
condition isn!t the only one factor that e"plains Thai economy growth. (e ha%e to
loo) at other internal and e"ternal factors as well.
&oreo%er if we focus on the e"porter side we will see that Thai e"porters
ha%e high ability in ad*usting themsel%es to world economy condition or new
challenges because Thai e"ports are well di%ersified in many ways.
'irstly Thailand is well di%ersified in e"ported product. This conclusion
can be gotten from 5"port <ommodity <oncentration inde" 6<7
.
which e+uals

. 7F G 6 + +i
where Hi is e"port %alue of goods i H is the total e"port of the
country and < is the number between 0 and 1. The country will be said as well
di%ersified if < is closed to 0. 'or Thailand case according to 4an) of Thailand
calculation in .00> < I 0.19= and < I 0.18= in .008 and < I 0.188 in .010. (e
will see that this number will cluster in the range of J0.180..K. Therefore
Thailand e"port sector has fle"ibility for competition in the world mar)et.
Secondly Thailand has well mar)et di%ersification. Thai e"porters are
acti%e in finding new mar)et.
1
5uropean 3nion 1, countries consist of Austria 4elgium Denmar) 'inland 'rance #ermany
#reece /reland /taly -u"embourge 9etherlands $ortugal /taly Spain Sweden and 3nited Lingdom.
.
See .010 /nflation report by 4an) of Thailand.
100
104
108
112
116
120
124
1996 1998 2000 2002 2004 2006 2008 2010
-,(ort s"ar& to 0/-02
-,(ort s"ar& to -.
-a(ort s"ar& ti 3a(an
-,(ort s"ar& to middl& &ast
-,(ort s"ar& to ./0
'rom the graph the share of e"port to middle east is relati%ely low and +uite
constant when compare to other mar)ets. According to the statistic Thailand
decreases its degree of dependent on 5uropean 3nion 3SA and ;apan e"port
mar)et and di%ersifies Thai e"port mar)et toward AS5A9 mar)et. &oreo%er we
see the change in e"port mar)et concentration inde"
=
. The %alue of the inde" in
.000 is 0..99 and it decreases to 0..12 in .00>.
'inally Thailand is well di%ersified in e"port in%oice currency that is
formerly 3S dollar was dominated in Thai e"port in%oice or order. 3S dollar was
accounted for 92? of e"port receipt in 1992 and the trend )eeps declining
o%ertime until now .010 3S dollar accounted for >2? of all e"port receipt. This
helps alle%iating the impact of 3S dollar depreciation e%en though the dollar
depreciate but Thai!s e"port re%enue won!t be fluctuate that much as before.
'rom all these reasons abo%e dependency theory isn!t now wor)ing on
Thai economy because Thailand uses e"port led growth policy and still faces with
good #D$ growth. &oreo%er we ha%e e%idences to show that Thailand has good
ability in ad*usting itself to world economy conditions. /n my opinion not only
e"port that are the ma*or reasons for economic growth we ha%e to consider other
countries economic condition and also our fundamental factors such as
macroeconomics policy infrastructure human capital in%estment etc. as well.
,. *enetration 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. .altung 1%'1$ )ensman 1%'1$ /u#inson 1%''!
=
5"port mar)et concentration inde" uses same formula as 5"port commodity concentration inde".
:owe%er Hi in this sense means e"port %alue from Thailand to country i.
/n order to see whether Thailand has ability to control its domestic industry
or not / will focus on Thailand structure of tariff and non tariff barrier of trade and
compare it with de%eloped countries as well as some of AS5A9 countries.
Tariff 0tructure of Thailand
1%%% 2001 200, 200& 2001
1 2ound tariff lines 3 of all tariff lines! >1.2 >..1 >=.> >1.> >=.>
2 0imple average applied rate 1> 1, 1= 11.9 11
Agricultural products )00142(! =..> .2 .,.= .,.= .,..
Industrial products )02+4%'! 11.2 1=.1 11 10 8.>
5T6 agricultural products ==.1 .2.= ., ., .,
5T6 non4agricultural products 11.1 1=.1 11.. 10 8.8
Te"tiles and clothing .1.> ..., 18.2 12.1 11.>
, Tariff 7uotas 3 of all tariff lines! 0.9 1 1 1 1
(
6verall standard deviation of tariff
rates 12.= 1=.2 11.= 11 11
&
Duty free tariff lines 3 of all tariff
lines! =., 1.1 1.1 1.1 18.,
'
8on4ad valorem tariffs 3 of all tariff
lines! .1., .=.1 .=.1 ..., ...,
1
8on4ad valorem tariffs with no A9:s 3
of all tariff lines! .0.8 ...1 .0.= .. 19.9
,ource- ."/ trade policy review %"hailand* 0112
Thailand import tariff structure is based on origin and category of products.
&oreo%er tariff structure of Thailand is %ery comple". According to the table
Thailand mostly imposes tariff in the form of ad %alorem basis. &oreo%er the
tariff on agricultural product is higher than non agricultural product. 'urthermore
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. :owe%er Thailand gi%es tariff e"emption to member of AS5A9 and
some countries that sign free trade area agreement with Thailand such as Australia
3SA 9ew Mealand etc. 4esides from tariff protection Thailand also has non
tariff barrier such as +uantitati%e restriction nonEautomatic licensing custom
barrier etc.
0ummary of Tariff structure for year 2001
Thailand :;
Australi
a
<alaysi
a 2runei
2ound tariff lines 3 of all tariff lines! >=.> 100 92., 80.2 9..8
0imple average applied rate 11 2.> =.1 >.1 1.8
Agricultural products )0014
2(! .,.. 9.= 1.1 ..> 0
Industrial products )02+4%'! 8.> 1.1 =.1 8 ,.1
Tariff 7uotas 3 of all tariff lines! 1 1.8 E 0.. 0
6verall standard deviation of tariff
rates 1( 1(.1 &.+ 11.+ 1.1
Duty free tariff lines 3 of all tariff 18., .,.= 12.. 20.= 28.1
lines!
8on4ad valorem tariffs 3 of all tariff
lines! ..., 10.1 0.= 0.8 1..
8on4ad valorem tariffs with no A9:s
3 of all tariff lines! 19.9 ..> E 0.8 1..
,ource- ."/ trade policy review
Thailand bound >=.> percent of all tariff line and mostly applied on fresh
and processed food. 'rom the summary table when compare simple a%erage
applied rate we will see that Thailand has the highest %alue. As a result Thailand
magnitude of protection is the highest especially in agricultural and automoti%e
sector. &oreo%er from the table o%erall standard de%iation of Thailand is the
highest. The higher the o%erall standard de%iation 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 mar)et. According to summary table we can conclude that
when compare Thailand with AS5A9 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 liberali8ation in order to impro%e competiti%eness
and alle%iate po%erty problem. That is Thailand wants to strengthen domestic
economy by integrating Thai economy to the world through e"panding bilateral
trade agreement with many countries and also be member of (TN. Therefore
Thailand reduces tariff duty and non tariff barrier on selected imported products
especially raw material and machine. :owe%er Thailand still puts high protection
in agricultural sector %ia tariff barrier non tariff barrier and also condition in
3ruguay round negotiation.
'inally according to the abo%e e%idences Thailand has ability to protect its
local industries through trade barriers. :owe%er Thailand chooses to reduce the
magnitude of trade barrier in order to integrate Thai economy into global mar)et
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 ha%e high economic
growth. &oreo%er trade liberali8ation or reduction in local industry isn!t always
bad. Trade liberali8ation ma)es country e"pose to the larger mar)et si8e and then
e"ploits economy of scale. &oreo%er high competition ma)es domestic industries
impro%e themsel%es in order to compete in world mar)et. Too much protection
isn!t good that industry will remain li)e an infant fore%er. There are many factors
that dri%e countries! economic growth. Trade protection is one of that issue
howe%er go%ernment should put too much protection on domestic industries.
Therefore the argument suggested by Dependency Theory that penetration of
foreigners into de%eloping countries will ma)e de%eloping countries remain wea)
and can!t protect its local industry is now not true for the case of Thailand.
=onclusion
'rom abo%e analysis we ha%e reasons to support that dependency theory
doesn!t slow the growth rate of Thailand. The o%erall findings can be concluded
as follows.
'irstly we raise the argument from Dependency Theory that de%eloping
countries suffer from the penetration of de%eloped countries because once they get
profit they will bring it all bac) to their home countries. Therefore de%eloping
countries don!t ha%e resources to led economy grow. This argument is re*ected for
Thailand case. As time pass by Thailand has become more and more rely on
foreign direct in%estment to support Thai e"port led growth policy. :owe%er
Thailand e"periences good trend of economic growth when compare to many
countries as well as the giant li)e 3SA in .008 world economic downturn. This is
because Thailand has fa%orable economics condition such as cheap labor
abundant of resources good trend of #D$ growth certainty of e"change rate
ban) base economy and many pri%ileges gi%en by 4N/ in order to attract foreign
direct in%estment.
Secondly Dependency Theory suggests that dependent countries don!t
autonomy to control their economy in the way of restricting import. 'or 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. :owe%er after
reali8ation of ad%erse effect of import substitution policy Thailand changed the
policy to e"port oriented altogether with import promotion. The second claim
from this argument is because income of de%eloping countries is mainly gotten
from e"port so that de%eloping countries ha%e to depend on uncertain world
economic condition. As a result de%eloping 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 e%idence Thailand uses e"port orient policy
Thai!s #D$ growth remains in good position. After Asian 'inancial crisis
Thailand used e"port led growth policy and then Thailand e"perienced share
reco%ery 6DEshape7. &oreo%er in .008 the year of global economic downturn so
many countries e"perienced negati%e #D$ growth. The e%idences show that the
magnitude of negati%e #D$ growth of Thailand is smaller than de%eloped
countries li)e 3SA and 5uropean 3nion. &oreo%er Thai e"porters perform well
in di%ersifying their e"port product mar)et and in%oice currency. As a result
Thailand e"port side has enough fle"ibility to cope with uncertainty of world
demand.
The last argument said that due to the penetration of foreigners so
de%eloping countries don!t ha%e power to protect its local industry and then foster
economic growth. 'or the case of Thailand we ha%e e%idences to support that
tariff and non tariff barrier of Thailand is strong enough to protect local industries
especially in agricultural and automoti%e sector. :owe%er Thailand has gradually
shifted trade policy toward trade liberali8ation by reducing tariff and non tariff
barrier %ia signing trade agreement with many countries. Trade liberali8ation will
help supporting Thai economy through e"ploitation of larger si8e of mar)et and
efficiency impro%ement due to high competition. Therefore we conclude that this
argument isn!t true for Thailand case. &oreo%er too much local industry
protection isn!t always good and doesn!t guarantee that countries will achie%e high
economic growth.
Dependency Theory isn!t true for Thailand case because it was around ,0
years since the theory had been created to the current era. 'ifty years is long
enough for the change in economy structure to be happened. 'or e"ample
nowadays although 3SA is still rich and high power country economic acti%ities
has been shifted more toward Asia. <hina becomes dominant country that has
high economic acti%ity concentration. 'urthermore sub prime crisis in 3SA and
also so%ereign debt problem in 5uropean 8one that ta)e lone time to reco%er so
image of 53 and 3SA is deteriorated. As a result many in%estors shift their
in%estment to Asia or emerging mar)et instead because they see growth potential
in this continent. /n the time that Dependency Theory was published <hina and
emerging mar)et are still down under when compare to the giant li)e 3SA.
Therefore it!s not wired that those economists would suggest Dependency Theory.
:owe%er in .011 era the giants are wea) and ha%e sign of slow reco%ery 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
e"posure to international mar)et etc. :owe%er it also depends on internal factor
as well. 'or e"ample suitable macroeconomic policy de%elopment in
infrastructure de%elopment in human capital good institutional sector etc.
'rom the abo%e analysis the penetration of de%eloped countries into
Thailand doesn!t retard Thai economic growth. :ence we don!t ha%e to worry
much about the rate of #D$ growth because at the same time of ha%ing good trend
of economic growth Thailand still has many internal problems. 'irstly although
Thailand e"periences good trend of economic growth income ine+uality between
agricultural and non agricultural sector people class and region increase
substantially. Secondly Thailand faces the problem of shortage of s)illed labor.
Thirdly since Thailand promotes more in industrial sector so Thailand faces with
resources depletion and en%ironmental problem. 'inally the ma*or problem of
Thailand is arisen from institutional sector. Since there is a lin)age between Thai
economy and Thai politic and Thailand has high degree of corruption. :ence
politicians will abuse their power and gi%e pri%ileges to their own business.
&oreo%er high degree of polari8ation in politic therefore policy dead loc) will be
occurred. As a result Thailand should de%elop or sol%e the problems of internal
sector altogether with the e"ploitation of the larger si8e of international mar)et and
the help from foreigners in order to achie%e high economic growth. /n other word
dual trac) approach should be applied so domestic stimulus policy should be
promoted along the line of open mar)et policy.
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