Thailand and Indonesia achieved different rates of economic growth since the 1960s due to differences in policies and institutions. [1] Thailand prioritized high levels of domestic saving, human capital development, macroeconomic stability, and limiting price distortions to support rapid growth. [2] Indonesia lagged behind Thailand's growth for nearly a decade due to lower education spending, weaker institutions, and corruption that hindered consistent economic policies and the adoption of technology. [3] However, since 2000, Indonesia's growth has outpaced Thailand's due to political instability in Thailand and Indonesia's large domestic demand supporting growth.

1. Growing, grown, gone?
Different countries within SEA have
experienced different rates of growth
since the 60s. In the context of at least
TWO countries, how would you explain
the growth rates which have been
achieved?
From The World Bank’s “The East Asian Miracle :
Economic Growth and Public Policy”, 1993...
“(T)he newly industrializing Indonesia, Malaysia, and Thailand... use a
variety of policies to achieve three functions of growth - accumulation,
allocation, and productivity growth. They are diverse in natural resources,
culture, and political institutions; and they differ in the degree of
government intervention in the economy and the manner in which policies
are shaped and implemented... It finds that the diversity of experience, the
variety of institutions, and the variations in policies among the HPAEs
does not allow a model to be developed. However, some lessons for other
developing countries can be learned from the East Asian experience. First,
it is essential to get the fundamentals right. High levels of domestic saving,
broad based human capital, good macroeconomic management, and
limited price distortions provide the basis for growth. Second, careful
policy interventions to accelerate growth produces very rapid growth.”

2. Just how did
they do it?
Fundamentalists - all about inputs but not
increased productivity
vs
Assimilationists - rejected rigidity of TFP in growth
accounting and preferred to attribute growth to
assimilated technology and skills

3. But general agreement that productivity
matters...
So how did it matter in the case of
Thailand and Indonesia?
TFP between 1.39 to 2.15 TFP between 0.31 to 1.45
Education expense 5% of GDP, average Education expense 3.6% of GDP,
years of school 6.1 average years of school 4.7
High-tech FDI in manufacturing was High-tech manufacturing FDI of 13%
15% in 1980s around the 1980s
Post-war bureaucracy higher degree of Weak bureaucracy and financial
political independence alongside i n s t i t u t i o n s c o m p o u n d e d b y
consistent economic policies corruption
The Indonesian share of capital goods in total imports per person employed turns out considerably lower than that
of Thailand, with the sole exception of the year 1982.
Thailand also preferred to adopt, adapt and diffuse technology rather than make risky investments in own
technology which in Indonesia’s case, did not come to fruition.

4. the results
Indonesia appeared to lag behind Thailand by 10 years.
GDP per capita of $1,875 achieved by Indonesia in 1983, Thailand
1973. Indonesia was hit by the 1997 crisis when it achieved $3,400
but Thailand reached this in 1987.
Indonesia’s per capita value-added manufacturing went from $86
(1985) to $115 (1998) while it was $167 to $585, more than a decade’s
lag.
The share of capital goods in exports for Thailand went from 7.3% in
1984 to 11.9% three years later. Indonesia only went past 7% in 1993
and hit 11.7% in 1996, when Thaiand had already achieved 37.8%.

5. 21st Century
Prospects
Since 2000, the roles seem to have
reversed. The political uncertainty in
Thailand has seen it unable to lift itself
out of the 2008 downturn.
Indonesia’s leadership has enjoyed a
significant mandate which coincides
with a growth in domestic demand
from a large population (which gives it
the China effect of not having to rely
on exports to maintain growth).

6. so where are they
heading...