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Structural change and income inequality: Evidence from Thailand

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  • Peter Warr
  • Arief Anshory Yusuf

Abstract

Structural change is the contraction of agriculture as a share of both aggregate economic output and employment and the corresponding expansion of the combined shares of industry and services. First, we describe this process in the context of Thailand, a country experiencing significant structural change in recent decades. Second, we analyse its causes using a simple, comparative static computable general equilibrium model of the Thai economy, operated in long-run mode. We test the explanatory power of three hypotheses about the causes of structural change: differences in the growth rates of aggregate factor supplies (the Rybczynski effect; sectoral differences in total factor productivity growth; and the differences between commodities in expenditure elasticities of demand (Engel’s law). The first two hypotheses operate on the supplyside of the economy, implying changes in the shape of the production possibility frontier (PPF). The third, a demand-side effect, implies changes in output prices during growth that induce movements around the PPF. The results indicate that the first two explanators predict the observed structural change accurately, but that the third, Engel’s law, predicts poorly. Third, we use the above framework to study the impacts these drivers of structural change have on the functional distribution of incomes. The results show that the explanators of structural change do not predict the observed changes in factor income shares. We conclude that these two phenomena have different drivers and that stable empirical relationships between them should not be expected.

Suggested Citation

  • Peter Warr & Arief Anshory Yusuf, 2025. "Structural change and income inequality: Evidence from Thailand," Departmental Working Papers 2025-06, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2025-06
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    References listed on IDEAS

    as
    1. Kym Anderson, 1987. "On Why Agriculture Declines with Economic Growth," Agricultural Economics, International Association of Agricultural Economists, vol. 1(3), pages 195-207, October.
    2. David Vines & Peter Warr, 2003. "Thailand's investment-driven boom and crisis," Oxford Economic Papers, Oxford University Press, vol. 55(3), pages 440-466, July.
    3. Mark Horridge, 2000. "ORANI-G: A General Equilibrium Model of the Australian Economy," Centre of Policy Studies/IMPACT Centre Working Papers op-93, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Peter G. Warr, 1999. "What Happened to Thailand?," The World Economy, Wiley Blackwell, vol. 22(5), pages 631-650, July.
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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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