Capital outflow from the agricultural sector in Thailand

Certain Thai policies have facilitated economic development in Thailand: i) Raising agricultural productivity even during the early period of import substitution. ii) The relatively equal distribution of land. iii) Decentralized industrial growth. iv) The labor-intensive export orientation of both rural and urban industries. v) Generally open, merit-based access to education. The author studies capital flows between Thailand's agriculture and nonagriculture sectors, focusing especially on government policy for agriculture, which shapes government-based flows. He measures government- and market-based flows of both the agriculture sector and agricultural regions. Until the 1960s, Thailand's economy depended heavily on agriculture and most of the workforce was agricultural. Since the 1960s, Thailand has promoted industry. Between 1961 and 1991, agriculture continued to grow but because nonagriculture sectors grew even faster, agriculture's share of GDP fell from 37 percent to 13 percent. But agriculture still employs the majority of the labor force and still receives the third largest budget allocations (after education and national defense). Many believe that Thai development was made possible by capital accumulation based on an agricultural surplus. To some extent, the role of that surplus before 1975 should not be underestimated. But the government-based flow of capital from agriculture (measured as a percentage of GDP) was less than 6 percent in the 1960s and early 1970s (except for three years), and the market-based flow was only 3 percent of GDP in 1971, 2.5 percent in 1981, and 1.9 percent in 1991(measured as deposits minus commercial bank lending). So capital flows from agriculture have not been as large as is typically assumed. Since the 1970s, the government has adopted an export-oriented policy emphasizing labor-intensive light industry, and investments to promote labor-intensive industries in rural areas has created jobs for rural people. With a fair level of investment in rural areas, the environment in rural areas is not drastically worse than that in urban areas (unlike Latin American and African countries), and migration to urban areas has been limited in Thailand. The government-based inflow (government credit for, and investment in, agriculture) was significantly greater for large farms areas than for small-farm areas. This might be attributable less to the political power of large-farm owners than to industrialization in Thailand's central region.