Limitations of the East Asia Economic Model (EAEM)

As its name suggests, the EAEM is a development strategy somewhat unique to Asia. The strategy is built around two key features: (a) high investment rates stemming mainly from foreign direct investment (FDI), and (b) an outward orientation emphasizing labor intensive manufactured exports. Multinational corporations often play a dominant role in both aspects—supplying FDI and mass producing goods for the export market. In practice, it is the development model followed by the majority of Asia/Pacific countries, including Thailand, since the late 1970s and early 1980s.

Imbalances created over time by the implementation of the EAEM have undermined its effectiveness in generating high and sustained rates of growth. For example, Lian[14] notes that the common pattern is for the Asia/Pacific region's terms of trade to worsen nearly every time global demand for electronics, agricultural products or primary commodities declines sharply.

[The] Asia/Pacific region's pursuit of the EAEM directly contributes to global imbalances and negatively affects the performance of Asian companies as well as the standard of living of the region's workers and households. The logic is simple, in our view: excess saving exacerbates the global savings imbalance that in turn necessitates imbalances in trade; in turn the nature of trade and production subjects the region to a vicious cycle of price wars and worsening terms of trade.[15]

Breaking this vicious cycle of price wars is another key component of Thaksinomics. Here it should also be noted that even in the hey-day of the EAEM, Thailand's openness[16] relative to other countries, while high, began declining in the early 1990s, suggesting that the EAEM model was encountering diminishing returns in terms of integrating the country into the world economy.

It is also not clear that the EAEM model was enabling Thailand to utilize its resources in the most efficient manner. In his analysis, Porter[17] found a strong relationship between his Microeconomic Competitiveness Index (MCI) and per capita income, with over 81 percent of the differences in country per capita incomes accounted for by the index. However, Thailand's per capita income is considerably lower than one would anticipate, given the country's MCI. In this sense the Thai economy was clearly underperforming in the early 2000 period. Korea, Malaysia, China and Indonesia also fell in the under performer group, while, given their MCI scores, Singapore and Taiwan's per capita incomes were in line with what one might expect. Hong Kong was the only country in the region classified as an over-achiever—incapable of sustaining its per capita income with no improvement in its microeconomic fundamentals.