This section considers TFP levels over time for each industry (Table 5.4). The TFP level in 1970 is set equal to 100 and estimated compound TFP growth rate is added to this index each year as in Table A5.9 Appendix CH 5 (see Chapter 4 for more details). From Table 5.4 (summarizing Table A5.9 Appendix CH 5), it can be seen that most industries had a TFP level higher than 100 at the end o f the study. This is consistent with the findings in Chapter 4 that the TFP level index for manufacturing sector is higher than 100. The trend o f the TFP level can be seen in Figure A5.2 Appendix CH 5: the TFP level increased, except printing and publishing, petroleum refineries and petrochemical products.
TFP level o f thirteen industries, 1970 - 89
1970=100
CHM
ELCM
NMET
TXLF
MACH
VEC
FD
1970
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1971
106.9
91.2
107.3
102.5
105.8
112.8
106.9
1972
114.4
87.1
114.5
107.6
101.7
133.8
106.1
1973
119.6
82.2
122.0
114.5
86.6
120.8
108.7
1974
99.5
55.9
117.9
99.8
88.3
66.6
99.4
1975
87.3
82.7
120.9
102.2
101.3
14.6
101.3
1976
98.3
68.2
130.0
117.4
92.8
50.2
113.1
1977
111.7
99.4
150.1
135.3
96.1
117.3
122.1
1978
137.6
121.6
152.9
133.0
84.4
116.0
122.7
1979
159.6
162.6
139.3
130.1
81.0
89.1
116.9
1980
195.4
177.3
131.8
120.8
86.6
108.9
112.4
1981
221.9
206.2
139.4
123.43
143.6
121.3
118.3
1982
211.0
234.4
134.3
122.3
143.0
112.9
114.9
1983
236.2
240.2
155.7
123.4
130.5
140.5
100.4
1984
289.3
264.0
176.9
122.7
101.9
131.8
103.1
1985
306.2
269.4
123.3
104.1
59.1
-7.8
84.3
1986
330.2
337.2
165.9
147.1
79.0
40.3
113.3
1987
396.5
345.8
207.5
179.5
105.3
81.0
131.9
1988
446.5
263.5
259.0
213.2
142.5
168.0
160.0
1989
432.1
314.1
297.7
230.4
223.7
220.4
186.2
Chapter 5 Page 111
year BVT MET RUBP W D PP PETR
1970 100.0 100.0 100.0 100.0 100.0 100.0 1971 81.1 100.0 100.44 103.1 100.7 125.9 1972 84.4 103.0 102.0 95.8 100.4 151.6 1973 100.1 94.5 110.7 85.5 106.3 146.8 1974 107.8 82.2 96.4 68.9 102.3 118.1 1975 115.7 83.4 95.1 60.7 109.0 130.8 1976 121.2 91.8 103.9 73.5 117.9 149.9 1977 120.5 104.2 109.5 80.7 131.7 151.2 1978 123.0 104.8 101.2 84.9 128.7 104.2 1979 148.1 107.3 114.5 98.2 100.7 77.0 1980 138.9 102.1 108.5 88.7 76.8 33.6 1981 161.7 88.1 89.4 77.1 78.6 43.6 1982 159.2 86.7 67.9 68.7 92.1 57.7 1983 171.0 82.7 92.4 66.8 122.2 59.4 1984 163.5 83.3 25.2 67.2 73.2 29.7 1985 130.5 103.9 23.7 49.8 39.7 18.7 1986 127.3 118.3 56.9 58.7 74.6 11.7 1987 141.2 128.1 92.9 87.1 48.9 -7.3 1988 172.6 137.1 123.0 111.6 23.7 -71.8 1989 168.2 136.4 129.1 98.0 57.4 -93.5
Source A uthor’s calculations
High TFP growth in industry may be due to a number o f factors which are dis cussed in detail in Chapter 7. The effective protection in food, electrical machinery and supplies, textiles leather and footwear, rubber and plastic products, non-metallic prod ucts and metallic products was quite low (around 0 to 0.2), in contrast to in industrial chemicals and other chemicals and machinery (around 0.3). The industries with low protection would be expected to have high TFP levels than those with high protection.
Foreign direct investm ent was also a m ajor factor prom oting TFP growth through technology transfers. Foreign direct investment was concentrated in electrical appliances, metallic products, non-metallic products, chemicals, textiles, food and ve hicles industries, particularly in the high growth period o f the late 1980s. Although the
effective rate o f protection o f transport equipment and vehicles was relatively high, the TFP level in this industry is higher than 100 in 1989, possibly due to the high propor tion o f foreign direct investment during the late 1980s. The recent reduction in import duty on imported cars in 1991 (for example from 180 per cent to 60 per cent for small cars), and hence reduction in protection, should induce further TFP growth in this in dustry. The effect o f this development on TFP growth could not be estimated due to limitations on data after 1989.
Exports and competitiveness are other factors promoting TFP growth in the high TFP level industries. Exports per value added were high during 1970 - 89 in metallic products (1.2), electrical machinery and supplies (1.0), food (0.7), textiles leather and footwear (0.4), and rubber and plastic products (0.4). On the other hand, the lower TFP level industries had rather low export shares (petroleum refineries and miscellaneous petrochemical products (0.04), printing and publishing (0.04) and wood paper and fur niture (0.3)).
Industrial concentration o f industries also explains differences in TFP. High in dustrial concentration leads to market domination by a few large firms. Industries were found to have quite low concentration ratios (Chapter 7), except for petroleum refiner ies and petrochemical products (50 per cent in 1970) and beverage and tobacco (31.0 per cent in 1970). Fhe concentration ratios o f the higher TFP level industries were found to be lower than 20 per cent in 1984, except beverage and tobacco. Although, beverage and tobacco had higher TFP levels from 1970 to 1989, TFP growth o f this industry declined from 2.9 per cent during 1971-80 to 1.7 per cent during 1981-89, possibly because high concentration retarded TFP growth.
Three industries were found to have a declining trend in TFP levels: wood paper and furniture, printing and publishing and petroleum refineries and petrochemical products (Table 5.4). A number o f reasons may explain their low TFP growth, includ ing high industrial concentration. Petroleum refineries and miscellaneous petrochemi cal products had a high concentration ratio o f 50.0 per cent in 1970 and 22.5 per cent in 1984. In printing and publishing, low exports (0.02) were likely to be the major explanation. Wood, paper and furniture had a medium degree o f protection, concentra tion and export shares.
Chapter 5 Page 113
Electrical machineries and supplies had low TFP levels in the early 1970s, but in recent years the industry’s performance improved. Electrical machineries and supplies firms were first established in Thailand more than 30 years ago mainly for import sub stitution for the domestic market. High protection is a major reason for the low TFP levels in this industry in the early 1970s (Table 5.4). In 1970, value-added was only 481 million baht and it had increased to 1,901 million baht in 1980 and 4,739 million baht in 1989 (all at constant 1972 prices). The industry changed its character in this period. From being import substituting it became export oriented as increasing wages in their home countries drove Japanese, Korean and Singaporian entrepreneurs to Thai land, particularly in the late 1980s.
Many factories in this industry are joint ventures. Although it is not a high tech nology industry, foreign direct investment is a major source o f technology transfer, explaining high TFP growth in this industry. The net foreign direct investment in elec trical appliances grew from 448.2 million baht in 1980 to 8,497.2 million baht in 1989, an average annual growth o f 32.7 per cent per annum.
This industry consists o f many small and some large manufacturers. Large manufacturers are normally those which have a large amount o f investment and most o f them are foreign companies operating for the export market (Bangkok Bank 1992). Many enjoy Board o f Investment privileges. Thai firms tend to be small. Some are sub-contractors for the other manufacturers.
Although the concentration ratio o f this industry was quite high in 1970 (29.7 per cent, Chapter 7), it decreased to only 13.4 per cent in 1984. The effective rate o f protection was 0.1 during 1981 and 1987 (Chapter 7). The export ratio was high (Chapter 7).
The government promoted the industry, initially for import substitution. Protec tion to stimulate the local production o f parts and accessories was unsuccessful and resulted in the slow growth o f this industry. Goods were smuggled into the domestic market, forcing the government to respond by reducing import duties on electrical and electronic goods. This made exports possible in the 1980s. Board o f Investment in centives included exemption o f taxes and import duties on machinery, exemption o f