General equilibrium evaluation of industrial policies on output, trade flows and income distribution in Thailand

The aim of this study is to develop a consistent social accounting matrix (SAM) and a multisectoral computable general equilibrium (CGE) model for Thailand in order to establish quantitatively the dimensions of the effects of industrial policies on particular industries, and on the Thai economy as a whole, under alternative tax transfer (replacement) policies for output, trade flows, and income distribution. The goal of this study is also to assess the overall effects of Thai industry-specific industrial policy during the period of 1980--90 on output, trade flows, growth, and income distribution.; Significant differences exist in the cost of general versus industry-specific industrial policy instruments used to stimulate output and trade flows. Nevertheless, the simulation results derived in this study show that industrial policy enhances both economic efficiency and income equality, given appropriate government policies. A decision regarding which industry will be promoted and which tax instrument will be applied makes a great difference in total output, aggregate demand, and the welfare level. Although more evidence is needed to decide which industry and tax policy is best for Thailand, the results show clearly that the choice of an industry and a government tax policy matters in the trade-off between economic efficiency and distributional equality. The social cost of industrial policy can be reduced by the proper industrial and fiscal policy decision.; Using data on the levels of government assistance, the model developed here indicates that the intermediate and capital goods industries, containing plastic, chemical and machinery industries, benefited the most from the combination of industry-specific policies as a whole. The model results reveal that industrial targeting of the 1980s strengthened the trade flows of these industries, but weakened the trade flows of other industries. Thus, industrial policy has been a contributing factor in the evolution of Thai's industrial structure and trade patterns. However, the magnitudes of changes in the composition of output induced by industry-specific policies have been relatively small, implying that the industrial policy has had little input in driving growth.; The model results also indicate that industrial policy during 1980s clearly coincided with a rising disparity in income distribution in Thailand's outward-oriented phase. However, the trend of income distribution from the period 1981--85 appears to have improved as the policy moved toward trade and industrial liberalization.