University of Warwick

Understanding Thailand’s Industrial Development in the Lenses of New Economic Geography
A Dissertation Submitted in Partial Fulfilment of the Requirements for the Degree of Masters of Science in Economics by Bhatara Chirapant∗ Dr. Nicholas Crafts Department of Economics September 2012
Abstract Industrial development in Thailand during the 1980s and 1990s was accompanied by the uneven distribution of income and the location of factories. Developments in New Economic Geography and the unique technique of nesting a HeckscherOhlin model within an increasing returns to scale model by Davis & Weinstein, allows for investigation on the factors of the location of industry. There is support for the existence of economic geography effects in as many as 56 percent of Thai industries. This home market effect provides a good explanation to the rapid growth and strengthening of the Central region of Thailand as the major growth area of production in the country and Southeast Asia.

I would like to thank Dr. Nicholas Crafts for the supervision of this research and the thoughtful suggestions and critique. I have benefited from comments from Dr. Joan R. Ros´s, Apisek Pansuwan, e Fredy A. Gamboa-Estrada, Thomas Swenson, Paveena Amornkul, and Timothy Gaw. © Bhatara Chirapant, 2012. All rights reserved. This dissertation may not be cited, reproduced, or distributed in whole or part without the express written permission of the author.

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Authors Preface
At the end of my undergraduate in Economics in Victoria, I had thought of applying into an Urban Planning or Development Master’s program to try to understand the factors that could explain Bangkok’s primacy and the uneven development of industry in Thailand. I chose Economics instead largely because it provided greater scope into the topic area. My interest expanded greatly in the post-grad courses International Trade Theory and Economic History by Carlo Perroni, and Nicholas Crafts at Warwick. It is perhaps in this part of my Master’s that I found an interest that I could develop into a full-scale research project. The research by Donald R. Davis and David E. Weinstein, followed by Joan R. Ros´s provide very insightful methods in capturing regional e disparities within and across countries. The edge that the New Economic Geography (NEG) models have over basic classical trade models, is that they allow us to combine two fields of particularly important relevance to trade and production. I hope that my research effort may shed some light into the disparities in Thailand. For a nation of nearly 70 million inhabitants, Thailand deserves greater notice in economics. For this, I would like to draw attention to an enormous task being developed by Robert Townsend, who recently received the Frisch Medal from the Econometrics Society for his joint research with Joe Kaboski on a Thai microfinance program. In writing their 2011 paper, they have provided Thailand with a series of data-collection tools culminating to the Townsend Thai Project. This project will allow for refined empirical work in applying New Economic Geography models to Thailand in the future, and perhaps, the methods of Davis and Weinstein can once again be applied then.

CONTENTS

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Contents
Author’s Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction 2 Thailand’s Industrial Development 2.1 Birth and Import Substitution . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Export Promotion and Intensification . . . . . . . . . . . . . . . . . . . . 1 3 5 5 7

3 Market Access and Economic Geography 9 3.1 Microfoundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.2 Idiosyncratic Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.3 Empirical Specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4 Empirics 15 4.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5 Conclusion A Appendix A.1 Map of Thailand’s Industrial Network . . . . . A.2 Map of Thailand’s Regions . . . . . . . . . . . A.3 Bangkok Metropolitan Region . . . . . . . . . . A.4 Summary Statistics of Thai Provinces . . . . . A.5 GDP Growth . . . . . . . . . . . . . . . . . . . A.6 Regional GDP Growth . . . . . . . . . . . . . . A.7 Regional Share of Output . . . . . . . . . . . . A.8 Population by Region . . . . . . . . . . . . . . A.9 Share of GDP Areas in Central Region . . . . . A.10 Sectoral Share of Output and Employment . . A.11 Sectoral Growth . . . . . . . . . . . . . . . . . A.12 Number of Industrial Estates in Thailand . . . A.13 Growth Pole Cities . . . . . . . . . . . . . . . . A.14 Number of Persons Engaged in Manufacturing A.15 Value of Investments in Manufacturing . . . . . A.16 Number of Factories . . . . . . . . . . . . . . . A.17 ISIC 2-digit Manufacturing Sectors In Thailand A.18 Data and Construction of Variables . . . . . . . 25 28 28 29 30 31 34 34 35 35 36 37 37 38 39 39 40 40 41 42

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INTRODUCTION

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1

Introduction

During the past forty years, Thailand has followed the path of many industrializing nations, whereby the output value of industry continually replaces the output value of agriculture (Richards & Walsh 2008). This process, often identified as one that lifts people out of rural communities and into towns and cities is synonymous with economic growth. But it has not wholly applied to Thailand, where large segments of the population remain underdeveloped and poor. Appendix A.5-A.11 present the situation quite clearly. Dissaggregated data reveals a startling truth, that not only is the bulk of output concentrated in the Central region, but industrial production as well. This inequality is a fairly well documented theme in most studies of the Thai economy both past and present (Tambunlertchai 1990, Biggs, Brimble & Snodgrass 1990, Kittiprapas 1999, World Bank 2006, Pansuwan & Routray 2011). A pertinent question to ask then is, what causes such disparities? More specifically, if we believe growth is driven by industry, what characteristics do certain regions possess that may have made them a target to early industrialization? In studying economic inequality, it would be impossible to move away from topics concerning economic growth. Economists attempt to account for numerous factors which drive countries forward, for which, not coincidentally, explain why some are left behind (Lucas 1988, Romer 1990, Barro 1991, Barro & Sala-i Martin 1992, Hall & Jones 1996, Barro & Lee 2001, Sala-i Martin 2006). The list is obviously non-exhautive. Numerous papers in economic geography too, try to relate institutions, crop yield, disease, openness to trade, and their potential impact on productivity differences (Hall & Jones 1996, Acemoglu, Johnson & Robinson 2001, Easterly & Levine 2003, Engerman & Sokoloff 2002, Frankel & Romer 1999). Relationships emerging from these topic have cemented our understanding of what fuels growth and oftentimes, provided governments with clear policy prescriptions in the event of unforeseen shocks.

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INTRODUCTION

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However, as Ros´s (2003) narrates in a similar paper to this one; despite these efforts e of the academic community, their detailed explanation of inequalities across regions rests on specific stories. They attempt to explain relationships between variables rather more than apply an underlying, but simple, economic theory that is testable. It is perhaps here where advances1 in New Economic Geography (NEG) research affords economists with fairly simple theories applicable to explaining differences among regions. Most beneficial is that it provides a strong theoretical basis for allowing space to determine growth, and that spillovers from industrial concentration can intensify inequalities (Krugman 1998). These theoretical underpinnings allow a systematic study of why certain regions and countries are more developed than others without conceding much ground on any particular relationship. The econometric methods and data requirements vary, but they typically study geographic concentration of economic activity, or “agglomeration”. It is in this vein of economic research that this paper hopes to discuss Thailand’s industrial development. The growing work on market access especially by Donald R. Davis and David E. Weinstein, have provided a refined technique in understanding the spatial distribution of industry. Their search for a home market effect, as a result of unusually strong demand in a particular geographic region, involves combining the more modern increasing returns model (Krugman 1980), and nesting it with remnants of trade theory (Leamer 1985). This technique is one that is unique to them, and was applied in Joan R. Ros´s’s (2003) e study of Spain. This paper attempts a similar approach into the study of Thai industrial development, specifically attempting to identify key determinants of the structure of industry. Any results would allow for a more thorough examination of the unequal development of the manufacturing industry in Thailand. In the end, I find realistic support for economic geography effects in Thai industries. A significant number of manufacturing sectors exhibit the home market effect including
The advances I refer to here are largely attributed to most works in economic geography following Paul Krugman’s (1991) seminal paper.
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THAILAND’S INDUSTRIAL DEVELOPMENT

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agri-foods, textiles, machinery and equipment, and a list of other heavy manufacturing industries. Despite the success of replication, I find that data limitations inhibit me from finding specific results for important industries as data had to be aggregated for the analysis. Nevertheless, the results provide strong support for the NEG predictions that the location of industry are determined by both endowment forces and those of increasing returns. In setting about this task, I begin with a brief introduction of Thailand’s story and its industrial development. Immediately following is a review of works in economic geography that attempt to explain market access, which leads on to the theoretical structure and empirical specification employed in the techniques of Davis and Weinstein (1996, 1999, 2003). I then reveal my results and methodology in section four and conclude in the last section.

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Thailand’s Industrial Development

This section sets out the story of industrial development in Thailand underlining the key policies and events that have shaped Thailand’s industrial manufacturing sector. Recent political turmoil, and the devastating floods in 2011, which destroyed as many as three industrial estates, revealed how important the country was in the global supply chain2 (Pansuwan & Routray 2011). Its status as a leader in intermediary goods production and final goods assembly deserves a proper narrative to tie it appropriately with the NEG story.

2.1

Birth and Import Substitution

The mandate of industrial development in Thailand is set by the Ministry of Industry via the National Economic and Social Development Plan (NESDP). The National Eco2 Thailand represents roughly 4-8pc of global capacity. Plant closures greatly disrupted Japanese and US companies automobile and technology companies which base just out of Bangkok in Ayutthaya.

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nomic and Social Development Board (NESDB), Ministry of Finance, and the Board of Investment (BOI) liaise with the Ministry of Industry to bring about the set goals (Pansuwan & Routray 2011). At the time of the First and Second NESDPs in the 1960s, GDP growth was a modest 5 percent per annum, but was in great contrast to the “Four Asian Tigers”3 . The Tigers’ growth came largely from a strong export-base, whereas Thai growth prior to the NESDPs, came from a spew of simple processing industries, accompanying wood, agri-foods, tobacco, and sugar (Hussey 1993). The NESDPs brought about a focus in the expansion of domestic demand and industry. Import-substitution meant Thailand became home to a growing number of assembly plants. FDI promotion was encouraged, and the government laid incentive packages for private companies to further invest in these plants. With a growing agricultural sector, and exports of primary products, combined with increasing U.S. involvement in Vietnam, Thailand’s economy boomed. Strains on the country’s infrastructure specifically in Bangkok’s inland port, were solved by aid and investment to upgrade facilities by the IBRD and the U.S. (Hussey 1993). Biggs et al. (1990) suggest that these infrastructure developments combined with the existing centrality of Bangkok cemented the crucial role Bangkok would play from then on. Both gateways of Thailand, Don Muang International Airport and the Bangkok Port, were located in proximity to as many as half of Thai factories (Tambunlertchai 1990). By the early 1970s, the Third and Fourth NESDPs specified exporting manufactured products as a prime directive. Regional dispersion of industry was attempted with the creation of the Industrial Estate Authority of Thailand (IEAT). Not long after though, global economic turmoil then struck with the effects being felt heavily due to Thailand’s status as a petroleum importer (Pansuwan 2010). The growth of primary exports was undone in a few years4 The world-market prices for rice, coconut oil, tapioca, tin, sugar,
In reference to South Korea, Taiwan, Hong Kong, and Singapore. The United States Army was a major purchaser of Thai primary goods, as well the development of the industrial sector in the Northeast region. The exit from Vietnam worsened Thailand which was entering into a second recession in the late 1970s (Biggs et al. 1990).
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and rubber collapsed. Moreover, land exhaustion, sustainability, and environmental issues plagued farmers. By the early 1980s, Thailand was the slowest growing economy in Asia, with growth just over 3 percent. It was perhaps these crisis years of the 1970s and early 1980s where the roots of large-scale industrialization and rapid expansion of output for Thailand would come from (Hussey 1993).

2.2

Export Promotion and Intensification

It was the reactive move of the Thai government through structural and fiscal reforms and a strong export-promotion policy that helped boost Thai GDP following slowdown in the early 1980s. The structural adjustment program under the Fifth and Sixth NESDP aimed for the creation of more labour-intensive, resource-based, and export-oriented manufactures (Pansuwan 2010). Foreign investments went up fivefolds in just three years, from 10.5 billion baht in 1986 up to 54 billion baht5 by 1989 (Hussey 1993). Roughly 90 percent of these investments were for exported goods. Liberalization of trade, government backing of export processing zones (EPZs) primarily in the Eastern Seaboard was quickly followed by a period of rapid growth (Hussey 1993, Stiglitz 1996). Industrial investment programs like the “growth pole6 ” strategy identified key growth cities (Glassman & Sneddon 2003). Growth on the number of 7-10 percent on annum was stable for a full decade from 1986-1996. It is perhaps a legacy of this boom and the policy coordination of the IEAT and Ministry of Industry that ensured the Central regions dominance in Thai industry (Pansuwan & Routray 2011, Glassman 2007). Using available time-series data, Appendices A.14-A.16 show what is surely a cemented and unchanging agglomeration of industrial manufacturing in the Central region.
One Thai baht is equivalent to approximately 4 U.S. dollars. Key cities and provinces in the North, Northeast, and South were provided with investment schemes to even the concentration in the Bangkok area and in the Eastern Seaboard. In the end, the programs success was limited to the targeted cities and provinces. Spillovers did not occur to neighbouring provinces of the recipients. See Appendix A.13.
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In 1997, growth was abruptly stopped by the East Asian crisis. Despite so, this decade of growth saw Thailand emerge as a new industrial and economic power in the region, fuelled largely by access to cheap labour, and the combination of logistical capability, and appropriate incentives7 . It became the location of choice for Japanese and Taiwanese technology, automobile, and electronics giants. The past two decades has seen less of an emphasis in dispersing industry geographically, but rather to build on the regional centres. EPZs along the borders with Malaysia used the southern growth city, Songkhla as its pole. Whilst in the North and Northeast, under the auspices of the ADB, the Greater Mekong Sub-region Economic Cooperation (GMS-EC) program was established to better link Southern China and Indochina8 . The past decade suggests that the core of the infrastructure network now rests with Bangkok and the Eastern Seaboard. It would seem unlikely any region could rival the Central region provinces’ expertise in industrial production. New oil refineries, natural gas processing stations, motorway developments, automobile assembling plants, and etc, locate based on their locale from the new Suvarnabhumi International Airport in Samut Prakan and Laem Chabang Port in Chon Buri (Pansuwan 2010, Pansuwan & Routray 2011). Recent developments in the costs of rapid rail transport have encouraged the government to expedite high-speed rail developments (Bangkok Post 2012). As identified by the Ninth and Tenth NESDPs, the objective has shifted from dispersing the growth to rather identifying clusters9 . It would seem that the Central region, raised by its geographic advantage to Bangkok’s main ports, and maintained by continued government investment is the clearcut startup location for most manufactures.
7 Furthermore, Thailand’s strategic location allowed access to a region of over 200 million consumers of the Indochina region (Tsuneishi 2005) 8 The Ninth and Tenth NESDPs specifically stressed the importance of the growth pole cities in order to be competitive, and that less of an effort be put on rural provinces. In accordance with this, recent infrastructure developments in the North with the inland port along the Mekong River has turned the GMS-EC into an important focal point. With the potential opening up of Myanmar, Thailand expects to be a key player in the regions development. See Appendix A.1-A.3 for detailed maps. 9 For a more detailed discussion of Thailand’s industrialization during the 1990s and early 2000s, I would recommend Pansuwan (2009).

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MARKET ACCESS AND ECONOMIC GEOGRAPHY

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3

Market Access and Economic Geography

Picking up on the concept of market access and its relevance in the study of the uneven concentration of industry, this section provides a thorough understanding of the NEG model underlying this empirical evaluation. Particularly, I attempt to justify the use of idiosyncratic demand coefficients in measuring economic geography effects in the interested industries.

3.1

Microfoundations

The reemergence of economic geography rests largely on the process of micro-founding models which many attribute to Krugman (1991). The simplicity of the models captures on the failures of earlier economists to incorporate advances in theoretical industrial organization and imperfect competition. As Dymski (1996) states, with imperfect competition, agents are affected by the optimization choices of others. As households engage in agriculture and are spread evenly in space, producers of manufactures realize that average costs fall for increases in output, and thus for each good, natural monopolies are present. Households purchase manufactured goods and vice versa, but more so is the fact that the industrial sector purchases manufactured intermediaries as well. This model builds on Krugman (1980) in providing the basis for the home market effect. Where previously it was held that only externalities could explain the existence of industrial concentration and clustering, via educational and technological spillovers, Krugman (1991) and Krugman & Venables (1995) suggests it is the increased demand deriving from the industrial sector itself and its interaction with transportation costs that creates this phenomena. As costs increases with distance, firms find that operating in a sole area with other industries present provides a basis for increasing returns to scale (Krugman & Venables 1995). This is termed the “home market effect”. More specifically, when a region or geographic area spends more, the change not only the

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affects firms on the receiving end, but those that relocate to capture the strong demand as well (Ottaviano & Puga 1997). In essence as Redding (2009) narrates, the home market effect leads to the endogenous differentiation of factors of production between space based on “market access”. Furthermore, as Redding (2009) accounts, where manufacturing increasingly concentrates in a specific location, the vast space that is left unused is turned into agricultural use, which results in a “core-periphery” pattern10 . This difference in land-use between the two regions often entails another effect, the “price index”. These two effects, the price index effect, and the home market effect, produce forward and backward linkages respectively (Ottaviano & Thisse 2004). The former means that the workers want to consume industrial goods cheaply, thus locate close to the supply. Knowing this and taking the cost of transportation, firms then wish to locate close to this demand. Both combine to relay the importance of market access11 They form the forces that promote the concentration of industry. Meanwhile, congestion and immobile labour make up dispersionary forces which may influence firms to relocate back to agricultural land. Combined with transport costs, a stable equilibrium may be established between the two forces of agglomeration and dispersion (Ottaviano & Thisse 2004, Redding 2009).

3.2

Idiosyncratic Demand

Whereas several empirical12 studies found support for increasing returns to scale on the prices of factors of production, it was not until Davis & Weinstein (1999) and Davis &
The most pronounced during the 1980s and 90s were that of the Eastern seaboard in the U.S. and Northwest Europe (Krugman 1992). 11 These effects were included in Krugman (1980), but lacked factor mobility. Krugman (1991) includes factor mobility and as a result of the home market effect, he finds wages are higher in the larger market as well. 12 For Europe, Midelfart, Overman, Redding & Venables (2000), Brakman, Garretsen & Schramm (2004), Crafts & Mulatu (2005), Breinlich (November 2006), Head & Mayer (2005), and the U.S. Ellison & Glaeser (1999), Hanson (2005), Klein & Crafts (2012), and across countries Redding & Venables (2004) have found support for the idea that wages and market access are highly related. In so doing, ij they construct a different variable through the use of market potential, M Pi = j (Dij ) Yj . M Pi , constructed by directly measuring market demand of j by Yj , and its distance between locations i and j.
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Weinstein (2003) combined both neoclassical and increasing returns to scale trade theories that a more holistic understanding of the geographic concentration of industry was reached. In so doing, this required the construction both theoretically and empirically of the idiosyncratic demand variable13 . In order for an empirical evaluation of the structure of production within a country to be implementable, it must allow for increasing returns and transport costs, the economic geography effects. But it must also allow for regions or provinces to vary by size, demand patterns, and endowments. As such Davis and Weinstein were the first to incorporate these elements. Under their procedure, they build off of Krugman’s (1980) model. They follow Krugman’s exposition of Dixit & Stiglitz (1977) and implore its use as it empirically separates comparative advantage and increasing returns models. He provides a basis for questioning whether a good which has, on average higher demand in a certain region than in the rest of the country, may influence it to become an export. Davis & Weinstein (1999) explain that Krugman develops the Dixit-Stiglitz model of monopolistic competition, assuming two consumers, two economies, and two classes of differentiated goods. The crucial difference is his use of iceberg transport costs between the two economies. There is the same proportion of consumers in each each economy. Preferences are iso-elastic in each country which insure that output per variety is the same for all varieties. The only difference arises from the number of varieties that are produced in each country. These are symmetric in production and demand. The symmetry also provides factor price equalization. The formulation goes as follows. Suppose there are two equal size economies with different preferences. The majority of consumers in both countries are in the proportion λi /λj , for countries i and j respectively. The majority of firms are in the proportion µi /µj . Krugman’s (1980) main
13

For a full detail of the construction procedure, please see Appendix A.18.

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specification then becomes, λi /λj − σ µi = µj 1 − σλi /λj (1)

Here, σ is the ratio of demand for a typical import relative to the same product produced domestically. The case we are interested in is win the majority of consumers in both countries are in the proportion of λi /λj ≥ 1. With trade costs, consumers demand smaller quantities of imported than of locally produced varieties (Davis & Weinstein 1999), thus the ratio of consumption for an imported good is only σ < 1. The number of varieties produced in a country according to the tastes of the majority are then µi /µj , when there is incomplete specialization. Moreover, when there is no excess local demand, or idiosyncratic demand, then λi /λj = 1 and µi /µj = 1 which means there is a zero net balance. Each country would produce the same number of varieties of each of the two classes of goods (Davis & Weinstein 2003). Davis and Weinstein believe that absent this crucial component between countries, production may very well be the same across countries. Therefore, when countries exhibit λ > 1, the bulk of production comes from the varieties of the majority-type consumer, consequently µ > 1. This result does not prove the home market effect. In order for the effect to be fulfilled, the excess demand must lead the good to be exported, meaning production must rise by even more than the demand. In order to induce this result, they take the derivative. This is called the “magnification effect”14 and under the range of incomplete specialization, is defined by, dµi /µj 1 − σ2 = >1 dλi /λj (1 − [λi /λj ]σ)2

(2)

Eq. (2) implies that countries with a large home market for a good will be net exporters
14 Further inspection of the result in Eq.(2) reveals that the increasing ”free-ness” of trade leads to a magnification of the magnification effect (Head & Mayer 2004).

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of that good15 . This result separates the roles of comparative advantage and economic geography. With trade costs, location of the manufactures is preferred by producers in the market with the greater demand. The movement to the larger market of producers produces to further effects on the remaining producers in the small market, (a) an initial inhibition for sales onto the large market, and (b) a protective effect against the producers who have relocated (Davis & Weinstein 2003). With the home market and the magnification effect, it is possible to show that the producers in the larger market will have more demand relative for the good item which has the idiosyncratic demand element, thus proving that trade costs can substantially alter the incentives of producers16 . Three closely related predictions can be concluded. Firstly, the good in the larger market will run a trade surplus and inevitably be an export. Furthermore, Helpman & Krugman (1987) show that the larger country’s share of producers in the increasing returns industry exceeds its share of consumers. Lastly, Head & Mayer (2004) show that increases in demand lead to more than one-for-one increases in production. This provides a basis for a world where under increasing returns to scale, the higher the idiosyncratic demand of a good turns it into an export. On the contrary, under “... a world of diminishing returns, strong domestic demand for a good will tend to make it an import rather than an export” is found in (Krugman 1980).

3.3

Empirical Specification

The approach taken to combine the correct theoretical structure with an implementable and testable model was very much ad-hoc by Davis & Weinstein, but matches theory and specification sensibly. Several key conceptual issues were raised. Initially, to construct any all-rounding testable model, one must incorporate remnants of the classical
Davis (1998) provides a thorough theoretical justification of this, affirming that market size matters for national industrial structure, and the result is strongly dependent on the relative size of trade costs of homogenous and differentiated products. 16 Davis & Weinstein find that an all-round model was not yet specified, the closest being Weder (1995)
15

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Heckscher-Ohlin model of trade, or at least compare the coefficients of idiosyncratic demand and comparative advantage. Secondly, multiple industries pose a grand departure from theory. Lastly, the construction of an appropriate demand measure to capture the home market effect would be a new precedent. In addition, data issues could prove a stumbling block. Head & Mayer (2004) narrate in detail the methodology17 that Davis & Weinstein employ to overcome the conceptual shortcomings. Below is a more brief exposition, characteristic of Davis & Weinstein (1999) and (2003). In the NEG world, two reasons will maintain the advantage of economies of scale. The first relates to the size of the market. Where a good has the same costs of production, it will be transportation costs that decide where production is located. Total transport costs will be lower where production is closer to the main market. The second reason relates to the forward and backward linkages explained earlier in section 3.1. Davis & Weinstein exploited the breakthroughs by Krugman (1980) and combined these with the traditional model of Leamer (1985) for an estimation equation based on both increasing returns to scale models and the Heckscher-Ohlin models. In essence, the endowments under the Heckscher-Ohlin model (HO model) should account for the overarching structure of industry by regions, Within the industry, this information would be identified by whether the region exhibited increasing returns or not. Under this specification, we assume there are n industries with Gn goods in industry n. We assume there is a certain number of primary factors,
N n=1 Gn

= F . There is

then a matrix that maps out the factors into outputs which is invertible, and this inverse matrix is given by Ω. All regions are then assumed to be diversified in production, and
nr the vector of output for region r and good g in industry n is Xg . Then the relationship

is made by the inverse technology matrix for region r and good g, and the vector of
17 The most substantial narrative deals with the jump from a 1 factor, 2 industries, and 2 economy world into the more realistic setup when testing the theory. I give a quick brush up of this conversion, but for a detailed look, I recommend the original paper by Davis & Weinstein (1996) as well as Head & Mayer’s (2004)

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factor endowments V r , mapping into,

nr Xg = Ωn V r

(3)

This is the form for which endowments purely explain the structure of production. The effects of economic geography are instead channeled through IdioDem. This is a constructed variable that requires disaggregated demand values for each industry n, region r, and good g, we get IdioDemnr . g
nROC nr Dg Dg − nROC X nr Dnr D

IdioDemnr = g

(4)

It captures the regional deviation of demand for a certain product, from the rest of the country’s demand of that product ROC. The full form equation is then,

nr n Xg = αg + Ωn V r + β1 IdioDemnr + g

nr g

(5)

Given the extensive work across countries and within countries of Davis & Weinstein, they identify three possible cases. Each case describes the corresponding level of friction. 1) β1 = 0: frictionless world with no transport costs, either comparative advantage or IRS, 2) β1 ∈ (0, 1]: comparative advantage with transport costs, 3) β1 > 1: economic geography.

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4.1

Empirics
Data

Below is a list of key information on the data requirements needed to understand the analysis. A more detailed explanation is provided in Appendix A.18 as per the construc-

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16

tion of variables. The data requirements are demanding. For the econometric analysis, data were provided by the National Statistical Office of Thailand (NSO), and the National Economic and Social Development Board (NESDB). Further more, the provincial constituents of the NSO provided the essential disaggregated data. The dependent variable, the manufacturing output data is from 2007 whereas the right-hand side variables, are a mixture of data from 2005-200618 . Data for manufacturing output for ISIC 2-digit levels are obtainable for only two censuses, in 1997 and 2007. There is good cause to choose 2007 data instead of 1997. One is largely due to the greater stability, and the ability for the economy to have developed a bit more. A close look at Appendices A.14-A.16 illustrate that despite a large increase in labour in manufacturing between 2002-11, it has not been followed by similar rates in the number of factories. This can be attributed largely to the rise of economies of scale and clustering policy, congruent with the Ninth and Tenth NESDP. Secondly, the Asian financial crisis was a major shock to all data series in Thailand. It would be extremely foolish to draw conclusions from that year. A more detailed listing of data sources and specific variables is provided in the Appendix under “A. 18 Data”. In total, 74 provinces were used in this study. Three provinces’ data, Sakon Nakhon, Lopburi, and Beung Kan, were not available via the NSO. Moreover, following concerns made by Davis & Weinstein (1999) in Japanese data, I decided to combine the Bangkok metropolitan region into one single observation19 . Lowering observations is obviously undesirable, but due to the regions close proximity and the clearly visible urban agglomeration of the capital20 , it wouldn’t be out of the question to conclude that there is inter-regional consumption. In total, there are then 69 provinces available.
In Ros´s (2003), the data used was in the middle of the industrialization process which they identify e to have begun in the few decades leading to 1860. Thus, it is appropriate here to use data for what can be ascribed as the middle of Thai industrialization (Pansuwan 2010) 19 See Appendix A.3 for a map of Thailand. 20 The Central region is divided into =four more separate regions. Results are more significant once this area is integrated, as they are all outliers. Appendix A.9 provides a good overview.
18

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17

In order to capture the three sources of Heckscher-Ohlin effects, labour, land, and capital, I followed the data conventions of Ros´s (2003), and Davis & Weinstein (1999) e and (2003). I detail the exact method of each variable construction21 in Appendix A.18.

4.2

Methodology

Classifications within the manufacturing industry were organized into 22 ISIC 2-digit level sectors by the NSO. This was the most detailed provincial data could provide. Moreover, there were immense problems with the data22 . After the omission, I was left
Table 1: Aggregation Scheme ISIC No. 18 36 20 17 28 22 15 25 29 30-35† 26 24

C/L Ratio Apparel 204.0 Furniture 234.8 Wood 286.1 Textiles 455.3 Fabricated Metal 525.5 Printing 556.0 Food 627.0 Rubber and Plastics 650.6 Machinery Equipment 783.2 General Heavy 1011.5 Manufacturing Minerals 1013.4 Chemical 1921.2

Sector

Aggregate 1 1 1 1 2 2 2 2 3 3 3 3

Due to data incompleteness, aggregation for six sectors was required to

reach a final figure. See A.16 for a full list of industries and their specification.

with a remainder of 16 industries but due to poor data in six of these sectors, these had to be aggregated in order to properly be used. These were ISIC 30-3523 . The downside is
The research by Davis & Weinstein and Ros´s follow similar conventions, but they vary on how to e exactly capture each endowment. 22 For tobacco, leather, paper, petroleum, basic metals, and recycling products, there was essentially no data, as values were set zeroes. Therefore I omit them entirely. 23 A key difference in these sectors than the ones I omit entirely, were that data was not disclosed, but was still included in the provincial totals provided by the government. Therefore, if I were to subtract all sectors from the provincial totals, I would get a substantial value for these sectors for which I attribute to sectors 30-35. It is the vital difference between the government’s demarcation of a zero and an UNDISCLOSED, that allowed for this investigation to proceed.
21

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18

that I cannot entirely associate which of these sectors produce more provincially24 . For the remainder of the sectors, credible values were obtainable for all sectors. Following the procedures of both Davis & Weinstein (1999) and Ros´s (2003), aggregation of the e different sectors was achieved by the capital-labour ratio25 . The idea behind aggregation is that each good26 within its particular class of production have similar inputs. Therefore to take into account differences and similarities in technological use, pooling of different sectors would allow more plausible results. I used data from the same census for total manufacturing output in Thailand to get values for capital and labour. The results were congruent with Davis & Weinstein (1999) and Ros´s (2003) and is presented in Table 1. e To begin the analysis, instead of Eq.(5), I test only the Heckscher-Ohlin determinants of production. This would allow us to determine roughly how much of the variation in ISIC 2-digit production could be explained by factor endowments. I capture three endowment forces, capital, land, and labour.

nr n Xg = αg + Ωn V r +

nr g

(6)

Table 2 presents the results of the estimations. A number of estimation issues came before which required econometric tools to maintain the integrity of the results27 . To overcome these econometric issues, I first estimated all regressions with OLS. Heteroskedasticity tests were performed by the Breush-Pagan test and graphically through the plotting of residuals. Some heteroskedasticity was present as residuals slightly varied
Appendix A.17 has values for each sector’s total for Thailand, but not provincially. Davis & Weinstein (1999) used both college vs non-college, and capital vs college and non-college. Data for number of skilled to unskilled labour was available for Thailand but not included as they yielded very disparate results. Moreover, as they conclude, the capital-labour ratio provided the best results, which was the method used by Ros´s (2003) as well. e 26 Each ISIC 2-digit level sector can be considered a good under the manufacturing industry of the economy. However, one can also treat groups of goods, what is termed as aggregates, as varieties in that industry (Davis & Weinstein 1999, Davis & Weinstein 2003). 27 It was tempting to transform all variables into their logs, however, as a number of observations had zero, this would have perverse the data.
25 24

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19

with some right-hand side variables, and therefore for all regressions, I applied robust regressions using Stata commands. All endowments were significant. Furthermore, tests for omitted variable bias were performed by running separate regressions with the observed dependent variable against the squared and predicted values of the dependent variable. No specification error was detected. A clear and present problem was the assumption that the endowments would be exogenous to the location of manufacturing production. This was surely not the case and the appropriate measure was taken to account for issues of endogeneity. It was quite clear that regions with more industries such as those in the Central region would continue to attract more Non-College and thus raise the amount of housing prices and may even inflate Capital. A potential solution that Ros´s (2003) suggests is to use data e in early industrialization. As detailed in Appendix A.18 Data, I use endowments in the range between 1986-1991 as instruments and regressed these on 2007 manufacturing output28 . I suspect that given the range of Thai industrialization, these endowments would be less significant, but more importantly, that factors would maintain a strong influence. Given that we would expect between the late 80s and early 90s more strength towards economies of scale and concentration, factors should play less of a role in explaining the variation in concentration. Panel A reports the main results, whereas Panel B presents the proxies using the instruments. As with all previous work, there is a substantially high R2 and F-statistic in the main specification. What is interesting is that, congruent with Ros´s (2003), the e values were along the same lines in that the higher the capital-labour ratio, the less endowments could explain the variance of manufacturing output. This also applied to the instruments.
Although this time period is arguably in the middle of Thailand’s industrial growth, it can be viewed as the birth of the new age of industrial production driven by export promotion from 1985 (see Section 2.2) that gives rise to more economies of scale and industrial clustering than the initial stage of industrial growth (Pansuwan & Routray 2011).
28

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Table 2: Heckscher-Ohlin effects on Production Variable Total Manufacturing Aggregate 1 Aggregate 2 Aggregate 3

A. Main Estimation Specification Non-College 518.173 (20.189) -70.816 (7.900) 71,133,068 (32,167,283) -202,082,731 (73,986,068) 1617.25 0.9024 69 81.614 (1.984) -11.167 (0.640) 2,497,816 (1,074,072) -13,204,279 (3,154,549) 666.04 0.8169 69 158.370 (3.872) -19.719 (1.731) 11,643,398 (3,720,286) -40,219,883 (9,709,542) 987.92 0.8620 69 219.019 (13.327) -31.310 (4.887) 44,550,260 (218,616,728) -117,496,566 (50,301,256 1823.51 0.7534 69

Land

Capital

Constant

F-statistic R2 N

B. Instrumental Specification Non-College 926.137 (97.818) -75.908 (23.098) 179,309,836 (60,552,859) -347,633,175 (90,541,248) 70.89 0.7813 65 146.848 (8.491) -13.573 (1.902) 13,115,048 (6,059,745) -36,709,483 (10,060,517) 227.01 0.7653 65 287.307 (27.854) -23.696 (6.459) 35,450,072 (10,103,311) -80,555,871 (19,530,931) 60.39 0.8122 65 385.847 (44.915) -37.332 (10.302) 97,393,314 (35,218,825) -173,251,463 (49,089,792) 92.15 0.7528 65

Land

Capital

Constant

F-statistic R2 N

Notes: Econometrics analysis was performed with the guide of Torres-Reyna (n.d.) A detailed explanation of variables is in the Appendix A.18. Adjusted R2 are not obtainable for robust regressions. Instrumental regressions use 1986-1991 data.

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Moreover, the results were similar to that of Ros´s (2003), in that as I had anticipated, e factors like land, and labour would play less of a role. Whereas a rise of 1 rai of land in the instrumental regression lowered total manufacturing production by roughly 76,000 baht, this came down to 71,000 baht in the mid-2000s. Similarly, both capital and labour endowments saw a decrease in their effects substantially. In the case of capital, this hints roughly to the idea that less capital was required to raise manufacturing output, thus fitting with the idea that with the rise of industrial concentration, more capital was required to invest. Many potential factors could attribute to this change, but the magnitude of the change in all three aggregates and the total indicate that it is likely that more capital is required to be successful in the manufacturing sector. For labour, this is perhaps inconsistent with previous works and my only explanation can be that Thailand’s success as an industrial nation has shifted unskilled labour into more hi-tech industries which require more educated individuals. This is perhaps not entirely plausible but cannot be ruled out. Nevertheless, the results are not ambiguous. It is clear, that an additional worker contributed more to gross value of output in the late 80s than in the mid-2000s. Thus, it seems that provinces
Table 3: 2SLS Results with Distance Variable Distance Coefficient 2949.651 (9787.308) Land -528.444 (1847.217) Capital -781,914,667 (3,439,597,410) Constant 1,885,223,970 (8,430,101,027) N 69

which were more abundant with non-college educated labour force in the late 80s were in fact more industrialized by the mid-2000s. Therefore, for the time being, I find there is a potential for economic geography effects to explain the movement of non-college educated labour, and capital to the geographically concentrated areas of industry. As mentioned previously, several papers including Breinlich (November 2006) and Klein & Crafts (2012) employed employed the distancedistance measures as

Corr. Distance and Non-College = -0.2003

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22

instruments. I of each provincial capital to the centre of Bangkok in order to check if distance would have any role in determining the size of manufacturing production in Thailand. I initially suspected that my labour measure, Non-College would be endogenous to the amount of production, as non-college educated workers would move to areas with more factories. By using Two-Stage Least Squares (2SLS) in the instrumental regression, I was able to come up with the following results in Table 3 which were fairly poor, thus only the specification for total manufacturing is shown, and not for the aggregate results. They exaggerate the results shown in Table 2 and all variables were insignificant. A large part of this was due to very weak instruments, as indicated by the correlation between the distance measure and labour.

4.3

Results

Through the estimation of the full equation of Eq.(5) for which I augment with Eq.(7), I was able to find several sectors that behaved similar to the predictions of the NEG, and yielded economic geography effects. I followed the methodology of Davis & Weinstein (1999), which was replicated by Ros´s (2003). Estimation was completed as they e instructed in either OLS or with a system of seemingly unrelated regressions (SUR). Both provided nearly identical results. I present the results in Table 4, for aggregates and Table 5, for individual sectors. At high levels of aggregation as shown in Table 4, the regressions have not surprisingly very high fit. Similar to previous findings, for all sectors, there is an increase in the fit from estimates in Table 2. This means that the new information provided by the economic geography determinants, combined with the factor endowments variables, to form the full specification, can explain nearly all the variation in high levels of aggregation of the industrial structure. It also provides deep insights that, out of the three aggregates, we can confirm that aggregate 3 is most likely in the world of economic geography.

4 EMPIRICS

Table 4: Economic Geography Estimation Results for Aggregated Sectorsa Total Aggregate 1 Aggregate 2 Aggregate 3

IdioDemb

Share

Factor Endowments 828 0.9997 0.9999 0.9759 0.988 0.9224 828 276 276 276

-0.1192 0.0295 1.1882 0.0025 No 276 0.9744

-0.0309 0.0209 1.1524 0.0043 Yes

-6.1563 0.2483 0.5619 0.0578 No

-4.1747 0.3021 0.4183 0.0428 Yes

0.6876 0.0791 0.9398 0.0565 No

-0.1664 0.0425 0.5390 0.0476 Yes

1.2765 0.0814 0.8704 0.0097 No 276 0.9933

1.1906 0.0757 0.9202 0.0196 Yes 276 0.9943

Observations

R-squared

Notes: See Appendix A.18 for full details. Adjusted R2 was not available under SUR.

a

In order to properly estimate the Economic Geography effects, I constructed the variable
np nROT SHAREg = (Xg /X nROT )X np

(7)

where ROT stands for Rest of Thailand. This refers to the overall commitment and importance of a good to the entire manufacturing industry. This term is augmented into Eq.(5) and is employed in Davis and Weinstein (1996, 1999, 2003) and Ros´s (2003). e b The construction of IdioDem is not provided in 4.2 Methodology but is in Appendix A.18 thoroughly.

23

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Whereas in the first two aggregates, and the entire manufacturing sector combined, they seem to be in a world of comparative advantage. It is likely that these regressions may be problematic as the aggregation scheme may not correctly determine the level of each effects. Thus, individual regressions of Eq.(5) are performed in full for each industry and are displayed in Table 5. In total, five of the twelve sectors are identified to have a coefficient of greater than unity. These are food, textiles, machinery equipment, and the aggregated heavy manufacturing sector. These results are again consistent with previous work in Japan and 19th century Spain.
Table 5: Economic Geography Estimation Results for Individual Sectors Idiosyncratic Demand ISIC No. 15 17 18 20 22 24 25 26 28 29 30-35 36 Food Textiles Apparel Wood Printing Chemicals Rubber and Plastics Minerals Fabricated Metal Machinery Equipment General Heavy Manufacturing Furniture -54.1415 7.84 2722.63 0.9927 Notes : The number of observations is 69 for all sectors, and OLS was the methodology. SUR provided results very similar to those in the aggregate estimations. All Economic Geography (EG) identified industries are in the 5% level. Yes Yes Yes Yes 8.5770 6.0909 -21.2622 0.0351 -25.9389 -0.4038 -0.9063 -0.0705 -0.2130 0.9996 2.2100 2.36 0.80 3.22 0.03 5.10 0.26 0.96 0.14 0.52 0.26 0.22 892.94 32919.05 1452.30 973.41 971.61 876.40 460.29 169.47 416.02 3495.86 1074.36 0.9837 0.9923 0.9880 0.8302 0.9866 0.8891 0.8310 0.3770 0.9680 0.9920 0.9934 Sector EG Coeff. s.e. F -stat R2

The aggregated heavy manufacturing exhibit strong economic geography effects, as well as textiles. Other industries exhibited the same sign as in Davis & Weinstein’s (1999) work in Japan. Moreover, of the sectors used, they had originally accounted for 87 percent of the total value of gross output. The sectors which exhibit the economic geography effects accounted for 56 percent of total value of gross output, which compares

5

CONCLUSION

25

with 55 percent to the value obtained by Ros´s (2003). Similarly, in comparison with e Japanese industries and OECD industries, where roughly 42 and 32 percent of industries had coefficients of greater that unity, respectively. This paper suggests that Thai industries maintain similar levels, as 9 of the 22 sectors, roughly 41 percent of industries had home-markets coefficients. This comes under one strong caveat, that unless refined data to the public is provided, the nine sectors could comprise of only four or five sectors in reality, due to the aggregation necessary for ISIC levels 30-35. As Thailand maintains its force as an international production center, these results provide great insight into the role economic geography forces play in determining the location of industrial production. Despite the issue of aggregation, these results also yield promising results for the NEG field as a whole, affirming the fields usefulness in understanding the role space plays in determining growth and the spillovers associated with agglomeration.

5

Conclusion

This paper aimed to understand the determinants of industrial structure in Thailand, in so doing testing the role of higher than usual demand. The theoretical foundations provided by the NEG models of Krugman (1980) has allowed for a specific technique to be crafted by Donald R. Davis and David E. Weinstein, which has provided a testable hypothesis on the effects of economic geography and factor endowments. The beauty of this analysis is that it provides a whole explanation for the causes of industrialization, and consequently the differing fortunes of different provinces and regions in Thailand. It seems that in some industries of manufacturing production, factor endowments alone cannot help explain the production of goods. In these cases, it seems that forces of unusually strong demand, referred to as the home market effects, help contribute to the location of industry. This is characterized by the differentiation

5

CONCLUSION

26

of products, and production with increasing returns. The analysis for what may be the cause of these home market effects in Thailand or the concentration of industry in the Central region is not within the scope of this paper but the answer will lie in the policies of the government that were touched upon in Section 2. These policies contributed to the identification of productive efficiencies in key regions followed by expansion and intensification. This established the necessary backward and forward linkages that are the basis of increasing returns. For it is not just the demand that arises from household consumption, but in fact that of other manufacturing sectors that determine the idiosyncratic element of demand for each region. Thailand’s industrial development has followed its own unique path. What this paper has established is that, the trend of this development is consistent with the patterns exhibited in other industrialized economies. The growth of industry in coincidence with the growth of infrastructures such as motorways and facilities capable of handling bulk shipments mean that, production concentrate in areas of greatest demand. This can be accelerated by policies that ensure manufacturers have an incentive to locate in these special zones, as is the case with the Central region of Thailand. The location of major government infrastructure projects such as the new international airport and major port, ensures that the Central region will remain the unrivalled growth region of the country. To conclude, I see two paths to move further after this research. The first is to exactly identify which industry contains home market effects and if possible to attempt work on more disaggregated data. This of course depends very much on the availability of data and as mentioned, is lacking. More refined and organized data for each province and their sectoral production, as well as more delicate intermediate consumption information will allow for more definite answers. Secondly, a large part of Thailand’s economy is configured to a global market. Similar to Hanson, an analysis can be performed liking the signing of NAFTA with the shift to export-led growth in the late 1980s. My suspicion would be that such measures would have had drastic implications to the structure of the

5

CONCLUSION

27

Thai economy, and that it would explain why a large bulk of production gradually shifted during that period. Consequently, this would have acted as an acceleration of the predictions of the NEG.

A

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28

A
A.1

Appendix
Map of Thailand’s Industrial Network

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29

A.2

Map of Thailand’s Regions

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30

A.3

Bangkok Metropolitan Region

Map showing the metropolitan region combining Bangkok and its neighbouring provinces, and the dense industrial concentration.

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31

A.4

Summary Statistics of Thai Provinces
Region2 GDP Population 3 (in millions )(in thousands) Value of Rank5 Gross Output4 (in millions3 ) 1,260.52 71 6,222.48 51 565,203.94 5 8,036.39 41 5,221.00 55 5,731.55 53 232,509.35 8 4,660.47 56 21,552.14 24 4,581.49 58 1,138,809.31 2 13,152.79 33 7,625.84 44 28,034.89 22 20,800.22 25 14,906.06 28 14,826.91 29 1,155,319.03 1 16,704.16 27 76,381.44 15 1,165.44 73 23,801.71 23 156.86 76 7,651.87 42 2,147.90 69 4,202.49 60 1,237.63 72 207,161.60 9 134,083.18 12 14,318.32 31 40,901.21 19 1,341.74 70 8,172.25 40 1,021.46 74 Continued Area (in km sq.)

Province1

Amnat Charoen Ang Thong Ayutthaya Buriram Chachoengsao Chai Nat Chaiyaphum Chantaburi Chiang Mai Chiang Rai Chon Buri Chumphon Kalasin Kamphaeng Phet Kanchanaburi Khon Kaen Krabi Krungthep (Bangkok) Lampang Lamphun Loei Lopburi Mae Hong Son Maha Sarakham Mukdahan Nakhon Nayok Nakhon Pathom Nakhon Phanom Nakhon Ratchasima Nakhon Sawan Nakhon Si Thammarat Nan Narathiwat Nong Bua Lamphu

NE C C NE C C NE C N N C S NE N C NE S C N N NE C N NE NE C C NE NE N S N S NE

13,497.60 22,191.10 390,744.70 62,472.20 203,011.10 30,098.70 51,853.40 39,933.40 126,486.10 65,973.50 475,900.20 50,047.90 44,588.80 76,385.90 72,954.30 143,806.30 49,236.00 2,337,123.00 55,507.20 63,731.10 37,021.60 67,740.90 10,706.20 40,142.50 15,149.90 18,476.80 136,698.90 26,936.90 159,556.60 81,428.20 123,650.80 23,174.20 48,356.50 18,059.20

396.91 274.52 768.69 1,642.55 711.60 365.79 1,193.82 536.56 1,596.31 1,205.11 1,195.57 505.27 1,004.41 716.99 785.10 1,882.64 392.02 6,865.57 818.11 434.56 657.53 777.40 231.66 1,024.61 341.68 261.81 963.68 746.66 2,805.29 1,150.57 1,711.62 489.21 765.38 532.53

3,161.20 968.4 2,556.60 10,322.90 5,351.00 2,469.70 12,778.30 6,338.00 20,107.00 11,678.40 4,363.00 6,009.00 6,946.70 8,607.50 19,483.20 10,886.00 4,708.50 1,568.70 12,534.00 4,505.90 11,424.60 6,199.80 12,681.30 5,291.70 4,339.80 2,122.00 2,168.30 5,512.70 20,494.00 9,597.70 9,942.50 11,472.10 4,475.40 3,859.00 on next page

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Summary Statistics – continued from previous page Province Region GDP Population Value of Rank (in millions) (in thousands) Gross Output (in millions) Nong Khai NE 39,637.00 969.13 2,628.82 65 Nonthaburi C 113,405.70 965.43 87,675.53 14 Pathum Thani C 257,370.90 821.00 599,143.48 4 Pattani S 39,657.50 682.67 7,304.03 46 Phang Nga S 33,436.90 265.49 4,196.60 61 Phatthalung S 32,962.00 560.47 10,146.39 37 Phayao N 25,854.10 532.83 2,309.21 68 Phetchabun N 72,236.40 1,033.35 6,895.30 47 Phetchaburi C 55,317.60 459.28 47,767.09 17 Phichit N 38,280.20 597.96 6,282.91 50 Phitsanulok N 61,660.80 845.74 13,873.44 32 Phrae N 23,374.60 516.24 4,177.60 62 Phuket S 70,196.40 296.86 14,628.88 30 Prachinburi C 68,968.90 451.93 113,363.39 13 Prachuap Khiri Khan C 58,549.40 480.78 47,603.44 18 Ranong S 18,196.80 187.79 7,643.48 43 Ratchaburi C 118,066.60 834.36 69,190.65 16 Rayong C 546,585.80 597.23 355,781.41 7 Roi Et NE 55,909.60 1,360.64 8,669.45 39 Sa Kaeo C 33,352.70 543.73 10,649.82 36 Sakon Nakhon NE 45,757.50 1,147.97 3,018.00 64 Samut Prakan C 589,745.80 1,298.09 1,132,971.12 3 Samut Sakhon C 359,670.80 587.25 389,647.84 6 Samut Songkhram C 16,117.40 211.48 9,120.14 38 Saraburi C 156,447.20 609.11 168,524.66 10 Satun S 25,983.80 288.38 4,648.27 57 Sing Buri C 23,987.20 235.90 19,680.72 26 Sisaket NE 52,578.30 1,531.74 5,540.21 54 Songkhla S 153,022.00 1,446.59 153,244.45 11 Sukhothai N 33,403.10 627.57 3,030.08 63 Suphan Buri C 67,472.20 892.23 11,517.51 35 Surat Thani S 123,450.60 998.53 40,750.96 20 Surin NE 55,030.20 1,438.34 7,466.16 45 Tak N 39,624.30 527.36 4,253.85 59 Trang S 59,583.50 680.37 32,849.11 21 Continued

Area (in km sq.)

3,027.00 622.3 1,525.90 1,940.40 4,170.00 3,424.50 6,335.10 12,668.40 6,225.10 4,531.00 10,815.80 6,538.60 543.00 4,762.40 6,367.60 3,298.00 5,196.50 3,552.00 8,299.40 7,195.10 9,605.80 1,004.10 872.30 416.70 3,576.50 2,479.00 822.50 8,840.00 7,393.90 6,596.10 5,358.00 12,891.50 8,124.10 16,406.60 4,917.50 on next page

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Summary Statistics – continued from previous page Province Region GDP Population Value of Rank Area (in millions) (in thousands) Gross (in km sq.) Output (in millions) Trat C 21,955.20 244.31 855.00 75 2,819.00 Ubon Ratchathani NE 79,176.80 1,860.03 2,448.67 67 15,744.80 Udon Thani NE 78,949.60 1,619.57 13,115.28 34 11,730.30 Uthai Thani N 21,400.10 319.48 6,054.67 52 6,730.30 Uttaradit N 31,304.30 489.14 6,459.34 49 7,838.60 Yala S 39,223.70 479.89 6,559.06 48 4,521.10 Yasothon NE 22,005.80 614.91 2,517.01 66 4,161.70 Total 9,041,551.00 66,903 7,304,513.97 513,100.00 1. Excludes the newest province Bueng Kan, for a total of 76 provinces. 2. The Central region is sometimes divided into a further Eastern, Western, and Central region. 3. In millions of THB. In 2009, on average $1 USD equalled 34.09 THB. 4. Value of gross output not the same as share of manufacturing by World Bank data. 5. Rank based on value of gross manufacturing output per province. Data by the NESDB 2009 and the NSO 2009

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34

A.5

GDP Growth

Data by World Bank.

A.6

Regional GDP Growth

Data by NESDB.

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35

A.7

Regional Share of Output

Data by NSO 2009.

A.8

Population by Region

Data by NSO 2009.

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36

A.9

Share of GDP Areas in Central Region

The three regions within the Central region and the Bangkok Metropolitan Region Data by NSO 2009.

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37

A.10

Sectoral Share of Output and Employment

Dashed lines are share of employment (from 1980), solid lines are share of output. Data by World Bank.

A.11

Sectoral Growth

Data by World Bank.

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38

A.12

Number of Industrial Estates in Thailand
No. of Estates 3 1 2 3 2 1 3 1 4 3 3 9 11 1 1 48 Region N N C C C C C C C C C C C S S -

Province Lamphun Phichit Saraburi Ayutthaya Ratchaburi Prachuap Samut Sakhon Phetchaburi Krung Thep Chachoengsao Samut Prakarn Chon Buri Rayong Pattani Songkhla Total

Information by IEAT 2012.

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39

A.13

Growth Pole Cities
City† Region

Value of Rank ∗ Gross Output Chon Buri C 1,138,809.31 2 Saraburi  C 168,524.66 10 Songkhla  S 153,244.45 11 Nakhon Ratchasima  NE 134,083.18 12 Ratchaburi  C 69,190.65 16 Surat Thani  S 40,750.96 20 Chiang Mai  N 21,552.14 24 Khon Kaen  NE 14,906.06 28 Nakhon Sawan  N 14,318.32 31 Phitsanulok  N 13,873.44 32 Udon Thani NE 13,115.28 34 Ubon Ratchathani NE 2,448.67 67 † Some cities and provinces names are the same. ∗ Millions of Thai baht , where$1 USD equals 34 THB in 2009. Information by Glassman & Sneddon (2003)

Province

A.14

Number of Persons Engaged in Manufacturing
2002 2,489,879 283,361 334,103 222,795 3,330,138 2011 3,005,285 285,781 401,637 219,972 3,912,675 Growth 20.7 0.9 20.2 -1.3 17.5 Share Share in 2002 in 2011 74.8 8.5 10.0 6.7 76.8 7.3 10.3 5.6 -

Region Central North Northeast South Total

Data by NSO 2009.

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A.15

Value of Investments in Manufacturing
2002 1,815,339.52 154,794.60 212,598.18 150,822.49 2,333,554.80 2011 3,628,715.24 259,023.76 333,138.49 227,635.95 4,448,513.45 Growth 99.9 67.3 56.7 50.9 90.6 Share Share in 2002 in 2011 77.8 6.6 9.1 6.5 81.6 5.8 7.5 5.1 -

Region Central North Northeast South Total

Note: Figures in millions of Thai baht.

Data by NSO 2009.

A.16

Number of Factories
2002 56,361 17,489 41,976 10,850 126,676 2011 61,518 16,651 42,844 11,087 132,100 Growth 9.1 -4.8 2.1 2.2 4.3 Share Share in 2002 in 2011 44.5 13.8 33.1 8.6 46.6 12.6 32.4 8.4 -

Region Central North Northeast South Total

Data by NSO 2009.

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A.17

ISIC 2-digit Manufacturing Sectors In Thailand
Value of Gross Output 1,128,891,097.10 46,356,204.40 280,976,686.40 201,636,703.40 90,634,592.00 76,762,987.30 172,356,715.70 83,366,707.50 366,160,790.00 524,490,785.20 524,041,344.40 247,836,452.20 289,772,161.10 366,765,342.30 416,859,104.00 62,541,812.70 228,306,205.10 937,071,429.90 70,392,522.20 815,326,993.10 154,636,760.60 216,414,419.00 2,916,150.20 7,304,513,965.70

ISIC No. Sector 15 16∗ 17 18 19∗ 20 21∗ 22 23∗ 24 25 26 27∗ 28 29 30 31 32 33 34 35 36 37∗ Total

Food products Tobacco products Textiles Wearing apparel and Fur Leather products Wood products Paper products Printing and publishing Refined petroleum products and nuclear fuel Chemicals and chemical products Rubber and plastics products Other non-metallic mineral products Basic metals Fabricated metal products Machinery and equipment Office machinery Electrical machinery and apparatus Radio, television and communication equipment and apparatus Medical, precision and optical instruments Motor vehicles, trailers and semi-trailers Other transport equipment Furniture Recycling -

Not available for this study due to data incompleteness. † Thousands of Thai baht. Data by NSO 2006.

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A.18

Data and Construction of Variables

This Appendix describes only the procedures and exact sources in the construction of the variables required for this study. The source and methodology are described in sections 4.1 and 4.2. Due to the very large nature of the task, I decided not to include it in the body of the paper as it would greatly undermine the flow of the argument, but is nevertheless necessary for any attempt to replicate the methodology of Davis & Weinstein. It is similar to Ros´s’s (2003) Appendix. e Disaggregated manufacturing data was obtained from the National Statistical Office of Thailand (NSO) The 2007 Industrial Census offered data 22 manufacturing sectors. The data used was the value of gross output in Thai baht.29 For capital, two methods were typically used, data on housing prices as a proxy for capital prices, or taxes on rents of housing, equipment, and other capital tools. Both of these were used by Ros´s e (2003) in order to capture what most countries now call capital stock. Capital stock data was available in Thailand and provided by the National Economic and Social Development Board (NESDB), but no provincial data has been collected. This would not be useful and therefore both methods of capital proxies were employed. Capital 1, using housing prices and payments on housing rent and consumption on household maintenance and equipment was provided by the 2549 Household Socio-economic Survey 30 . Under the survey, the monthly expenditure category used per household estimated the total rental value of the house if it was owned, the repair costs and maintenance, the amount of durable goods and appliances. Therefore, this provides a fairly appropriate proxy for capital per household. Whereas in capital 2 required the use of tax data provided by the Provincial Revenue Offices and obtained by the NSO. Furthermore, due to data unavailability by the NSO, a bulk of the numbers were obtained through request with the Revenue Department, under the Ministry of Finance. Capital 2 included personal income tax, corporate income tax, business tax, value added tax, specific duties, stamp duties, and an uncategorized label for others. It did not include excise taxes. Their direct use in estimation achieved high multicollinearity among labour variables. Moreover, after accounting for this through elimination of specific duties, stamp duties, and business tax, the remainder were insignificant and issues of heteroskedasticity plagued the regressions, thusly, capital 1 was the better variable choice. Capital 1 is measured by thousands of Thai baht. Land endowments were slightly easier. The construction of a land variable based on land prices as done by Ros´s (2003) would have been too hefty a task31 . Instead, I used the quantity of rai32 farm e holding land for the year 2005. This was provided by the Office of Agricultural Economics under the Ministry of Agriculture and Cooperatives. No alternative source to capture land endowments could be sought as they relied largely on the availability of pricing data for land. In order to capture labour factors, I first applied a similar methodology to Ros´s (2003), capturing e the effects of the different labour categories available in Thailand. This boiled down to nine different categories; legislators and management, professional, technical vocation, clerk, service workers, skilled agriculture, artisans and crafts, factory workers, elementary occupations. The abundance of data was bound to provide a good regression. However, on second look, the fact that factory workers entered the right-hand side of the equation was a cause for concern as clearly there would be endogeneity. Moreover, because of multicollinearity of data this initial method was abandoned and I used instead Davis & Weinstein (1999)’s use of college and non-college educated people over 15. Davis & Weinstein used the number of workers by educational attainment, here we employed a similar method using data by Ministry of Information and Communication Technology collated by the NSO. Under the 2006 Informal Employed Survey, I was able to get a count for the amount of people with a primary, high-school or Ros´s (2003) apply a similar concept. e Some surveys and dates in Thailand still conform to traditional Buddhist Era (BE), where BE 2543 is equivalent to AD 2000. 31 To obtain this, the only available land price source was compiled by the Treasury Department under the Ministry of Finances. This provided data for land prices on each major road and each land plot. However, data would only be disclosed if a valid sale or purchase note were issued and a pre-existing mortgage could be shown. 32 Rai is a Thai measurement system for land, where 1 rai is equivalent to 0.40 acres, or 0.16 hectares.
30 29

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college education. Instead of maintaining the division of college and non-college, correlation between the number of college, secondary school, and primary school educated students were in the high 90s, thus I compiled the most significant division. This was achieved when I excluded anyone with a college degree or without education. Therefore the variable labour compiles anyone over the age of 15 with education up to and until college. Data for the instrumental regressions were obtained from 1986-1991 data due to the limited accessibility. For capital, I used similar data but backdated to 1990. For land, there was available information from the Office of Agricultural Economics again, available for the year 1986. Meanwhile, the labour data had to be a compilation of a variety of years, from 1987-1991 using the Informal Employed Survey. However, with further data issues and incompleteness, several provinces were not included in the regressions which included Khon Kaen, Nakhon Si Thammarat, Ratchaburi, and Udon Thani. This lowered our power down from the initial 69 to 65 observations. For the construction of the Idiosyncratic Demand variable IdioDem, I required both consumption and intermediate consumption data for each province. This was a very complex task, and guidance was afforded by Joan R. Ros´s. The key idea was to identify demand for each province and each product. e This was markedly more difficult with an advanced industrializing economy in the late 20th century like Thailand, than that of 19th century Spain. The consumption of final and intermediate goods were rounded for each product (different ISIC 2digit level sectors). Household consumption data was taken from the Household Socio-economic Survey of 2006 by the NSO. Industrial intermediate goods consumption was taken from the Industrial Manufacturing Survey of 2006. Final consumption goods; food, textiles, wearing apparel and fur, furniture, wood, printing and publishing, chunks of heavy manufacturing (ISIC 30-35) and some chemical products were represented by demand from the household. While the demand for the remainder; fabricated metals, rubber and plastics, machinery, other non-metallic metals, chemicals, and heavy machinery were accomplished by acquiring intermediate consumption patterns of relevant industries. There was great care in the use of intermediate consumption data to connect each sector with its producer and demand as much as possible. Here the combination of ISIC 30-35 helped as data for the Purchase of Materials, Components, and Inputs in the intermediate goods survey provided only a rough guide. Provincial totals were computed with the combination of both household and industrial intermediate goods consumption. Through Eq.(5), I was able to construct a similar variable for Thailand and each sector and province. This was the variable Idiodem.

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