¶ … Multiplier
Thailand, like many third world countries, is interested in identifying the mechanisms by which economic growth may be achieved. Economic growth and more specifically 'rapid economic growth falls within the province of the mid-term and long-term macroeconomic policies (Dervis and Petri 1987, p. 211). Dervis and Petri, survey 20 'middle income' countries, in an attempt to identify the factors which contribute to successful development-which they identify as moderately rapid economic growth as measured by changes in the GDP ((Dervis and Petri 1987, p. 213-214). The work Dervis and Petri is over 20 years old; it is useful only to set a baseline for the macroeconomic challenges faced by developing countries, in comparison to the macroeconomic challenges faced by Thailand in 2011 and beyond.
Primary indicators of success in included among others, three factors. First, political stability- the authors note that often many developing countries experience a period of rapid economic growth only to suddenly experience a crisis which singularly reverses years of growth and expansion (Dervis and Petri 1987, p. 214-216). Second, high-investment, countries that experienced consistently elevated levels of investment outperformed countries where capital was not secure and capital flight began to occur. (Dervis and Petri 1987, p. 213). Finally, the authors also noted that, developing nations with aggressive borrowing strategies had GDP growth which was sustained at levels above those developing nations which eschewed taking loans from the developed nations (Dervis et al. 1987, p. 218).
It is imperative to see if any of these strategies pursued 20 years ago have any implications for what Thailand's current macroeconomic strategy should include and the role that the concept of the multiplier effect may play.
Thai Government
Bhanupong explores the decision by the Thai Government in the aftermath of the financial crisis to determine to what extent the decisions have been effective in alleviating the downturn in the export economy. In the wake of the 2008 world financial crisis the fiscal centers of the many of the world's nations were directly and negatively impacted. Thailand, however, managed to weather storm differently although not without some negative impact. Thailand's interaction with the crisis occurred primarily in Asian nation's export economy (Bhanupong 2010, p. 121). Fortunately, the Thai banking and financial sectors had few investments in the type of sub-prime debt which precipitated the crash. In the first year after the crisis data for Thailand show a 15% decrease in the amount of exports. Id. More importantly, political instability and low consumer confidence have severely altered Thailand's upward economic growth trajectory; as early as 2006, Thailand was experiencing decreases in "consumer consumption and investment." Remember that in Dervis and Petri, the data suggested that economic growth sustained by sound economic policy and a favorable business environment, could be wiped out by political instability. The reduction in Thailand's export sector can be attributed directly to the overall decrease in the "world trade volume" (Bhanupong 2010, p. 122). The Thai economy, unlike many other countries, is overly dependent on the purchasing power of foreign nations, and therefore is often more sensitive to downturns in world trade which result directly in decreases in the Thai export sector.
Bhanupong addresses and explores the effect of the monetary policy which the Thai Central Bank has embraced. Of critical importance to the macroeconomic concept of the multiplier, is the central bank's decision to lower interest rates and to intervene in the baht/dollar exchange rate- this is related to monetary policy- and the accompanying Thai Government's fiscal policy to expedite and increase public spending (Bhanupong 2010, p. 130). Although Bhanupong's article does not directly address the role of the multiplier, the author's observation provides us with two recommendations. These recommendations will suggest how a thorough understanding of the concept of the multiplier effect would aid the Thai Government's management of its macroeconomic environment. Namely, a thorough understanding of the concept of the multiplier effect would illuminate the long-term effects of domestic spending, the decrease in interest rates, and the management of the Baht's exchange rate. It is hoped that such an understanding of the role of the multiplier will suggest new and complementary strategies to accompany the existing monetary and fiscal policy.
Multiplier Introduction
The multiplier effect, as it pertains to the Thai government, has two formulations. In the first instance we are concerned about the multiplier effect as a money...
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