Adverse Trends in Total Factor Productivity
In part, the increasing limitations on growth imposed by the EAEM manifest
themselves in the observed trends in the country's total factor productivity
(TFP). TFP measures the efficiency of a given set of input factors, capital
and labor in generating output. Alternatively it can be thought of as the
level of technological development in the economy a given amount of
factor input will generate more or less output depending on the country's
technological capacity. TFP is a critical variable for sustaining long-term
growth because unlike increments of capital and labor it is not subject to
In its assessment of the trends of TFP in Thailand, the IMF
found that the high rates of growth in the pre-1997 period were driven by
capital accumulation, rather than TFP growth. Even more significantly, IMF
estimates show that TFP growth slowed during the 1990s. This finding is similar
to that of other researchers.
These patterns no doubt account for the fact that in terms of the overall
competitiveness of its products, Thailand lags behind several of its East
Asian competitors: Singapore, Hong Kong, Taiwan, Korea and Malaysia, with
China quickly closing the gap. It should be noted that Thailand did improve its competitiveness during
the first two years (2001-02) of the Thaksin administration.
Given likely demographic and investment patterns in the country, the IMF
concluded that medium-term economic growth in Thailand will have to be driven
by TFP growth rather than accumulation of capital and labor. This shift in
the country's growth mechanism represents a sharp contrast with the pre-1997
growth pattern driven largely by capital accumulation.
The need for TFP-led output growth underscores the importance of maintaining
an environment that is conducive to efficiency gains and technological development.
It is in this light that Thaksinomics will be examined belowis this
new approach to development in Thailand likely to succeed in creating the
necessary conditions for expanded productivity and growth?