Impact of Industrialization on Government Finance

Abstract

The speculation that Thailand will soon join the class of newly industrialising countries to become ‘the fifth tiger of Asia’ is well documented (for example Teerana, 1990; Thammasat University, 1989), and the economic boom of 1988–91 has heightened this belief. Asset and land prices rose sharply, stimulating a further increase in aggregate demand through wealth and expectation effects. Higher economic growth induced by an inflow of direct foreign investment strengthened the momentum towards export activity and further industrialization, and convinced the government of the importance of export-led growth. Land speculation and the boom in tourism hastened the decline of farmland as many farmers gave up their land in exchange for unexpectedly high land prices. Sudden increases in aggregate demand led to supply shortages, notably in construction materials, manpower (especially engineers and skilled technicians) and, most seriously, public infrastructure.