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2. For sustained growth and development, economies faced
with middle-income trap such as Thailand need to undertake
long-term structural transformation.

Thailand presents a clear example of the economic challenge. It
reflects both the success, and the limits of the East Asian economic
development model. Thailand’s remarkable sustained growth and
development over an extended period, was built on a rich natural
resource base, driven by low-cost labour coming out of agriculture into
urban industry, supported by high levels of capital investment, prior to
the Asian Crisis 1997, and facilitated by effective economic institutions.
Growth has been strongly market- and outward- oriented, with the
private sector playing a central role in responding to international
product market opportunities, through impressive expansion and
diversification of manufactured exports. The results have included a
combination of sustained growth, macroeconomic stability, economic
diversification, and increase in the quality of life as measured by most
non-economic indicators, including dramatic decline in poverty. The Asian
Financial Crisis of 1997 eroded but did not erase Thailand’s gains from
growth and development. 8

In recent years there are clear signs that Thailand has been
losing its comparative advantage based on low-cost labour; and that
there may be underlying weaknesses in Thai firms’ capabilities to
compete in mid- and higher-technology processes and products. Income
growth has stalled; inequality has increased, as elsewhere; and there
remain significant pockets of structural poverty. These conditions have
given rise to concerns that Thailand has fallen into a “middle-income
trap”. The essence of the middle-income trap is being squeezed
between economies that are lower-wage manufacturers, and those that
are high-wage innovators. The basic challenge facing Thailand is
transformation of the economy from growth driven by manufactured

8 George Abonyi, 2013. Thailand: Private Sector Assessment. Asian Development
Bank, Manila, December.

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