MACROECONOMIC POLICIES AND POVERTY:
THE THAI EXPERIENCE
Table of contents:
2. A Brief Look at Thailand's Economic Transformation and Growth
3. Poverty Incidence and Conditions
4. Poverty Profile and Correlate
5. Impacts of Macroeconomic Policies on Poverty and Income Inequality
References and Selected Bibliography
1. Introduction
Among the high-performing East and Southeast Asian economies, Thailand stands out as one of the most outstanding economies in the region in terms of the extent and the rate of economic growth it has generated. From 1961 when Thailand launched its first national development plan, the GNP per capita was only 2,700 baht whereas in 1995, three decades and a half later, its GNP per capita is estimated at 68,405 baht, an increase of more than 25 times in nominal terms. The rate of growth of GDP averaged about 7.9 per cent during the firs decade of the systematic development (that is after the first plan), and 6.9 per cent during the second decade. Although the growth fell somewhat during the first half of the third decade, the second half of the 1980s saw the Thai economy taking off onto a new height of economic development with double-digit growth rates. After some periods of retrenchment, the Thai economy is now maintaining a slower but still respectable growth rate of about 7-8 per cent per annum during the first half of the 1990s.
Such extraordinary growth and expansion have helped the Thais increase their average household and personal income, and as such has caused the incidence of poverty or the proportion of people having income lower than a given poverty line to fall continuously. But while this economic phenomenon is very clear to see, it is quite complex to really understand the true nature of changes in poverty conditions in the country. For example, how well accepted is the concept of poverty used in the measurement of poverty incidence? What is the techniques used in the computation of poverty line? Who are the poor under a given poverty line and why are they poor? What kinds of policy impacts various government policies have on the poverty conditions of the Thai people? Has the poverty been reduced because of an overall growth policy or any specific anti-poverty programs of policy? What else outside poverty changes that the Thais experience during the implementation numerous development policies? And so on. These and other problems are critically important for the understanding of the relationship between economic growth and poverty alleviation.
In this paper we will concentrate on three specific issues. First, we will explain the main features of the growth of the Thai economy in recent years, to see how the Thai economy has transformed from being agriculture-based to industry-based within the last three decades, and how the livelihood of the Thai population has changed. Secondly, we will examine the changes in poverty (and income inequality, when it is appropriate to do so) within the same time periods, and the characteristics of poverty or poverty correlates among the Thai population. Finally, we will discuss the effects of some of macroeconomic policies adopted in Thailand since the early 1960s upon poverty (and income inequality), and the prospects of poverty policies in Thailand under the new economic conditions.
2. A Brief Look at Thailand's Economic Transformation and Growth
When the first National Economic Development Plan was launched in 1961 Thailand was a typical agricultural economy. Over 80 per cent of the population were engaged in agricultural activities, with rice as a major crop for both domestic consumption and export. Other major crops and primary products for export included rubber, maize, kenaf, teak and tin. Under the threat of population explosion (the rate of growth of the population was over 3 per cent a year) the government decided to move the economy away from low-level equilibrium and push it into systematic development. And the basic development policy was for the government to play supporting role to the investment initiatives of the private sector.
The transformation from an agricultural to an industrial economy in Thailand is shown in Table 2.1. From this table it may be seen that, overall, the rate of growth of GDP in Thailand has been quite satisfactory. During the 1960s, the economy grew by 7.9 per cent a year, reducing to 6.9 per cent during the 1970s. Growth slowed somewhat in the early 1980s due to difficulties associated with the energy crisis. But after a few years of structural adjustment and cautious economic management the economy returned to high growth in the latter half of the 1980s. The average growth rate of GDP during the 1980s was 7.8 per cent per annum, but between 1986 and 1990 the economy grew at 11.2 per cent per annum.
It is also obvious from Table 2.1 that the relative contribution of agriculture to Thailand's GDP started to decline from the beginning of the period of the First Plan. In 1960 the share of the agricultural sector in GDP stood at 39.8 per cent, compared with 18.2 per cent and 42.0 per cent, respectively, of the industrial and service sectors. Agriculture's share reduced to 28.3 per cent in 1970, 25.4 per cent in 1980 and finally to 12.4 per cent in 1990. The rate of growth of the agricultural sector as a whole was estimated at 5.5 per cent a year on average in the 1960s, falling to 4.3 per cent a year during the 1970s. Agricultural growth was higher at 4.7 per cent in 1980, but from 1986-90 growth fluctuated more widely. Agriculture had negative growth of -0.2 per cent in 1987; but during 1988 it surged to 10.2 per cent but fell again to -1.8 per cent in 1990. As the agricultural sector has become smaller in relation to other sectors in the economy and more exposed to international conditions, its growth pattern has become prone to wide swings.
In the meantime the industrial sector which contains the manufacturing, mining, electricity and power, and construction subsectors, increased its GDP share from 18.2 per cent in 1960 to 25.3 per cent in 1970, 28.4 per cent in 1980 and 39.2 per cent in 1990. The growth rate of 4.4 per cent in 1980 was untypical of this sector, and was mainly the result of the second oil shock during 1979-80. As can be seen in Table 2.1, in the latter half of the 1980s the average rate of growth of the industrial sector was continuously high, reaching 17.4 per cent in 1988. Of course the principal growth engine has been the manufacturing subsector, whose performance has been the main reason behind the high growth of the industrial sector. The service sector is also expanding well. As the economy has become more industrialized, the service sector-which provides general basic support such as banking, finance and insurance, transportation and trade-has grown in step with it. In fact the fastest growing subsector in the Thai economy in the last three decades has been banking.
Currently the Thai economy continues to industrialise. As shown in Table 2.1, the share of agricultural value added is estimated to fall slightly from 10.4 per cent in 1994 to 10.3 per cent in 1995, whereas that of the manufacturing is estimated to increase from 28.7 in 1994 to 28.9 per cent in 1995. It may be noticed, however, the pace of industrialisation has become slower as the relative shares of agriculture and manufacturing in the total GDP did not change much in the last few years. Considering the fact that the majority of the population (more than 55 per cent) is still engaged in agricultural activities, this level of structural change reflects a continuing attempt by the authorities to maintain the relative share of the relative share of the agricultural sector. Probably they will see to it that the decline in the agricultural value added will not become too rapid, at least not until the industrial employment or employment in the services sector have risen fast enough to absorb a larger proportion of labour from the agricultural sector.
The overall growth rate of GDP in 1995 was estimated at 8.6 per cent. This is the same as in 1994. It is quite likely that Thailand may be able to maintain the rate of growth around 8 per cent for some time to come as the country has gained the experience of appropriate economic management, that is to keep the economic expansion at a level that does not put too much pressure on the price level. For example, it is forecast that the GDP growth rate for 1996 will be 8.3 per cent, a little less than the growth rate of 1995 because the authorities have aimed at controlling the rate of inflation to no more than 4.9 per cent in 1996 (compared to the actual rate of 5.8 per cent in 1995). The growth and stability of the Thai economy, having come under some destabilising pressure lately, have maintained a satisfactory trend.
The Thai economy experienced major growth impetus in the latter half of the 1980s. First, the large (14.7 per cent) devaluation of the Thai baht at the end of 1984 brought about more-than-expected good result in export growth a few years later. The appreciation of the Japanese yen after the 1985 Plaza Accord saw an influx of Japanese direct investment into low-cost Thailand starting around 1986. The success in the tourism promotion of the Thai authorities in 1987 witnessed the doubling of foreign tourists between 1985 and 1989, and tripling between 1985 and 1995. Although Thailand experienced sustained current account deficits, its balance of payments is helped by net capital inflows, with adequate foreign exchange reserves for up to 6 months of imports. Until last year, where the country suffered from severe floods in most parts of the country causing food prices to rise disproportionately, the inflation was maintained at below 5 per cent. The Thai government is also in good fiscal conditions, enjoying its 8 consecutive years of fiscal surplus since 1987. The export growth, one of the major growth engines of the modern Thai economy, slows down a bit in the first half of 1996, but is expected to pick up during the remainder of the year. The overall picture of Thailand today is that of a newly industrialised country whose production and exports have now included such manufacturing items as textile products, computer parts and components, electrical appliances, jewellery as well as processed food.
3. Poverty Incidence and Conditions
Growth has manifest itself in various ways during the last three and a half decades. One is the increase in average household and personal income, and the other is the reduction of the incidence of poverty. In the following section, we discuss the changes in average household and personal income and the proportion of the people living under the conditions of poverty.
3.1 Changes in Average Household Income
The National Statistical Office (NSO) conducted a large scale household income and expenditure survey for all regions of Thailand during 1962/63. This survey eventually provided the first series of income and expenditure data that poverty researchers have continued to use ever since. From Table 3.1 which presents average income of Thai households in various survey years from 1962/63 to 1992, it may be seen that the annual household income of an average Thai in 1962/63 was only 1,601 per person per year. The relative structure of income position of the Thai people has already been established at that time, that is to say, Bangkok population will have the highest income, and those of the Northeast will have the lowest income. This pattern has never changed in the past 30 years although the relative income positions of the people of South, Centre and North do switch around through time.
Chart 1 gives a graphic presentation of these changes in average household income through time from 1962/63 to 1992. In the beginning of the period most incomes were set close together at a rather low level as pointed out earlier. As the country developed, these incomes increased, with Bangkok region showing a clear sign of faster growth than any other regions even in the second survey period in 1968/69. This growth trends for Bangkok continued throughout the 1960s and the early part of the 1970s, accelerated in the second half of the 1970s and kept on expanding in the last 20 years. In 1992 the average household income per capita in Bangkok is more than twice higher than any households in other regions. In the meantime it may be seen that the average household income of the Northeast always lags behind all other regions, and the gap has become widest in 1992.
However, these patterns of changes in average household income do not give an accurate welfare changes of the people because the effects of price changes had not been taken into account. When the average household income as shown in Table 3.1 is adjusted by the price changes using the consumer price index, another picture emerges. Table 3.2 shows these effects by presenting the rate of growth of real income of these different regional households between different periods of income surveys such as from 1962/63 to 1968/69, 1968/69 to 1975/76, and so on.
First of all, it can be seen clearly that the annual rate of increase of real income between 1962/63 and 1968/69 is quite high. For example the average increase for the whole kingdom was 5.7 per cent per annum, compared with even higher rates of 7.3 per cent for Bangkok and the North, 6.1 for the Northeast, and 5.9 for the Centre. Only the very low annual rate of growth of the South had resulted in the lower overall figure. The generally high rate of growth could also be explained by the fact that the average household income figures for 1962/63 is likely to be understated because only cash income was included in the survey, whereas from 1968/69 onward, the NSO had included the estimates of income-in-kind in the average income of households.
When the data are classified into urban and rural households, it can be seen that the urban households experienced higher income growth than their rural counterparts. However, during 1968/69 to 1975/75 the urban household income suffered a relative decline compared to the rural household income. This was due mainly to the relatively higher inflation rates in the urban areas, particularly in association with the first oil-price increase between 1971 to 1973, which was repeated during the second oil price increase between 1979 to 1981. Coupled with high commodity prices in the middle of the 1970s and the early 1980s, the relative real income growth of rural households up to 1981 was higher than that of urban households (2.1 per cent compared with 1.3 per cent). It has become quite obvious that economic growth and development during the 1960s and 1970s, while benefited the urban households more than the rural households, had also trickled down onto the rural households in terms of their higher average incomes.
From 1981 to 1988, however, the rural sector suffered a setback. The commodity prices (rice, sugar, and cassava) fell significantly during these periods, reaching the bottom around 1986. At the same time, the unexpected fall in the oil prices towards the middle of the 1980s, and the positive response to the drastic devaluation of the Thai baht in 1984 in terms of increased manufactured exports, had helped the urban-based manufacturing sector enormously. It can be seen that between 1981 and 1988 the real rate of growth of rural income fell to -0.7 per year, whereas the urban households still maintain a small but positive growth rate of 3.0 per cent. It is also interesting to note that when these urban and rural areas are combined, the real rate of the whole kingdom was still positive but very small (0.8 per cent).
Actually the data for the year 1986 were skipped because of the extraordinary drops in commodity prices during that year, severely affecting the income positions of most households in the rural areas. The average household income in 1986 in some rural areas, for example, in the Northeast actually fell in absolute terms in comparison with 1981. The year 1986 should be treated as unusual year and should be excluded from the analysis. However, starting from 1987, the economy began to rebound strongly, partly as a result of successful promotion of the tourist industry, the overwhelming increase in the exports of manufactured products, the realignment of the Japanese yen leading to massive influx of Japanese direct foreign investments into Thailand, and other capital inflows from foreign sources for equity investment. Within the space of two years, that is from 1988 to 1990, the overall household income in Thailand increased on the average 14.4 per cent per year. The real income growth during the next two years, that is between 1990 and 1992 was even more spectacular as the average increase of household income for the whole kingdom was estimated at 24.6 per cent per annum. The income growth is enjoyed by both the urban and rural sectors, although the former received higher rate of growth than the latter.
At the end of 1992, therefore, the income growth of households in all regions has been most satisfactory, with high positive growth rates across the regions. The year 1988 could be treated as the beginning of another unusual period, but there is no need to exclude this period from the analysis because, unlike 1986, 1988 could be looked upon as a start of a new cycle of economic growth where the economy is sufficiently transformed into a newly industrialised stage not similar to the situation in 1986. Even when the overall economic growth of the country declined after reaching the peak of 13.2 per cent in 1988, the general growth level has remained high. The Thai economy has entered a new phase where this high economic growth should be a norm rather than an exception.
Before concluding this section, it is interesting to further investigate the patterns of income changes within the last decade when households are classified in various ways. In Table 3.3 it may be seen that Thai households are divided into quintile groups, by region, community type, sector of production, and occupation of the heads of households. The spectacular growth between 1988 and 1990 is again confirmed with the (current) annual growth rate of 21.7 per cent compared to 12.1 per cent between 1986 and 1988. The current annual rate of growth between 1990 and 1992 fell somewhat from 21.7 per cent to 17.1 per cent but this fall is more than made up by the low increase in the relative price levels between the two periods. By other classification, the richest quintile (Quintile 5) has the fastest rate of income growth which, as will be explained later, contributed to the worsening of the income distribution. During the first two years of the boom period, the region with the highest income growth is not Bangkok proper, but the fringe areas of Bangkok where many manufacturing activities now concentrate. However, Bangkok proper regained the position of the highest growth region two years later. The growth is also higher in sanitary districts which are now treated as new urban areas. Heads of households who are farmers (agriculturists) fared less well than heads of households in other occupations. And as expected, the professional and executive households had relatively higher growth rates, but so had the labourer households. This should not be surprising because the growth in manufacturing activities had led to better wages and larger employment of industrial and service labour.
3.2 Changes in the Incidence of Poverty
The changes in average household income in the last section have shown that most households benefited from the last 28 years of economic growth although the degree of benefits differed from one group to the other. The real rate of growth may be small and slow at first, especially for rural households, but a continuous income growth such as this is certain to have positive impact on the reduction of poverty in Thailand. This is shown to be the case when the incidence of poverty is measured.
Since 1974, researchers on poverty in Thailand have used two significant techniques to measure the extent of poverty in the country. One technique is based on the concept of household consumption function where household expenditure survey would produce data that can be used to compute the average consumption function of households in various settings. From this typical Keynesian consumption function, a 'break-even' point could be calculated which gives the level of income which is completely used up as expenditure. This income level could be regarded as the upper limit of poverty in the country, whereby some lower income limit could be set as a lower limit to represent the minimum level under which a household or a person could be defined as poor. This level could be the proportion of the 'break-even' income which is spent entirely on food, for example. Poverty incidence would be measured as the proportion of households or population living under this lower limit.
The other technique uses the concept of the minimum amount of food that a person is needed in order to survive. This concept of 'nutritional adequacy' is then translated into actual food items and their prices. The minimum amount of income to purchase the said basket of food, plus some necessary non-food items such as clothing, shelter, and medicine, would be regarded as the poverty line. Poverty incidence is known by counting the number of households or population having income less than this poverty line and presented as a proportion of the total population.
Up until the present time, the first technique which can be called 'Consumption Function (CF) Technique' was used only once (see Medhi and Chintana, 1975), whereas the second technique which can be called 'Nutritional Adequacy (NA) Technique' has received a much wider popularity, and is regarded as the technique of choice today (see Trairong et al., 1975; Oey Meesook, 1979; and the World Bank, 1980). Despite its popularity, the NA Technique still suffers from the lack of technical refinements. The technique was used once to get the poverty line for 1975/76, and that line was used again and again in later years simply by applying price adjustments without taking into account the changes in household and population structures, their new consumption patterns, and changed standards of living. Indeed, this lack of technical improvement in the standard technique had led to a new attempt to draw a new poverty line, as will be explained later.
Due to different techniques of studies and different definitions and uses of units of analysis, it is not possible to have one uniform series of estimates about the incidence of poverty in Thailand. Instead, it is possible to group important poverty studies into 4 series with specific characteristics and findings as follows:
(1) Poverty Incidence Series I
This is the earliest series conducted by the present author to cover the periods from 1962/63 to 1981. The poverty line for 1963/63 was calculated by the CF technique, but from the 1968/69 survey onward the NA technique poverty lines with price adjustments were used. Additional adjustments were made on different definitions of location (urban vs. rural areas) and different definitions of family. The adjusted poverty incidence for 1962/63 to 1981 is shown in Table 3.4.
As shown in this table, the incidence of poverty was very high in 19632/63 where the overall incidence for the whole kingdom was 57 per cent, further classified into 61 percent for rural areas, and 38 per cent for urban areas. The understatement of household income during those years could be one of the reasons for this high poverty incidence, but it is also reasonable to believe that a large proportion of the people was indeed poor. This high poverty incidence in 1962/63, however, was substantially reduced to 42 per cent (adjusted figure) in 1968/69, 33 per cent in 1975/76, and 31.3 per cent (adjusted figure) in 1981. Thus the secular decline in poverty incidence between 1962/63 and 1981 is clear, although the extent of poverty in some regions such as the Northeast was still quite high. In 1975/76, for example, the poverty incidence in the Northeast was 48 per cent, whereas in Bangkok it was only 12 per cent. Still this was a substantial reduction from the 1962/63 level of 74 per cent.
(2) Poverty Incidence Series II
Suganya Hutaserani and Somchai Jitsuchon of the Thailand Development Research Institute (TDRI) in Bangkok conducted a study on the state of poverty and income inequality in 1988 to cover the periods from 1975/76 to 1986. (Suganya and Somchai, 1988). Medhi et al. (1992) extended the series to cover 1988 as well because the data coverage and definition for 1988 were similar to the studies by Suganya and Somchai and could be presented together. From Table 5 where the poverty incidence Series II is displayed, the declining trends of poverty were interrupted in 1986 when the overall poverty incidence increased from 23.0 per cent in 1981 to 29.5 per cent in 1986 before falling down to 21.2 per cent, the apparent normal trend, in 1988. The poverty situation in 1986 was therefore very unusual, and it would be more appropriate to exclude the incidence for the year 1986 from the series rather to include it. When this is done, the poverty trends would again show a continuously declining pattern, but it seems that the rate of poverty decline has become much slower when compared with the situations during the first Series.
Between 1975/76 and 1988 (not counting 1986), the overall poverty fell from 30 per cent to 21.2 per cent, a reduction of almost 30 per cent. Poverty in Bangkok proper (city core), already low at 6.9 per cent in 1975/76, dropped to 2.7 per cent in 1988. This is another indication of the relative economic prosperity of Bangkok compared to the rest of the country. In the Northeast, 36.8 per cent of its rural population still lived in poverty in 1988, the largest concentration of the poor people in Thailand. However, while this still represents a reduction in poverty from over more than a decade ago, the situation in rural areas of the Central Region seemed to get worse. The poverty incidence in 1988 was 15.0 per cent compared to 14.3 per cent in 1975/76. Perhaps this could be explained by the fact that the industrialisation activities centring around Bangkok and its vicinities had forced many households in the rural areas in the Central Region to migrate to work in Bangkok, leaving the poorer households behind. Moreover, the recent redefinition of Bangkok Region to include 4 surrounding central provinces further eroded the income positions of the remaining households in the rural Centre and increased its poverty incidence.
(3) Poverty Incidence Series III
These are the newest poverty incidence series based on NA technique poverty line with necessary price adjustments. The data for the computation of the 1988 incidence came from the same source as in Series II but the treatment of sanitary districts in Series III is different from that in Series II. In Series III, sanitary districts were treated as urban areas in contrast to Series II which treated them as rural areas. Admittedly, the true nature of these locations is probably somewhere in between, but there in no doubt that many of these sanitary districts have become more 'urbanised' in recent years, and it is more proper to group them among urban areas rather than rural areas. This Series III is a new series which henceforward will treat sanitary districts as urban areas.
As a result of this regrouping where (higher) urban poverty line is applied to households in sanitary districts, poverty incidence naturally increased in these locations. The overall poverty for the whole kingdom in 1988 was, therefore, 22.8 per cent and not 21.2 per cent as in Series II. This may have overstated the overall poverty incidence somewhat. It is more interesting to observe that from 1988 to 1990 this poverty incidence dropped from 22.8 per cent to 18.6 per cent between 1988 to 1990, and from 18.6 per cent to 13.7 per cent between 1990 and 1992. This is equivalent to a poverty reduction of 18.0 and 26.3 per cent, respectively, between the two periods, which is a very large reduction indeed, and reconfirms the beneficial effect of rapid income growth discussed in the last section. The benefits of rapid income growth in 1990 spread across all regions quite thoroughly, although some regions may be shown to have received relatively larger benefits such as Bangkok and the surrounding provinces of Bangkok where the poverty incidence declined to 2.7 per cent in 1990 from 9.6 per cent in 1988. The effects of industrialisation have really helped the people in industrial areas in and around Bangkok.
(4) Poverty Incidence Series IV
So far we have accepted the price-adjusted NA poverty cutoff income as the only legitimate poverty line. The adjustment by price alone would be a perfectly acceptable way of updating the estimate of poverty income if one would assume that there is no change in the population structure, in the pattern and composition of household or individual food and non-food consumption, and in the minimum nutritional requirements for a typical individual between 1975/76 and now. One could even question the original estimates of the World Bank for 1976 because it had based its calculation on the minimum caloric intakes for the Thai population in 1970, six years earlier. Therefore, a more accurate estimate of poverty income reflecting changes in population structure, consumption patterns, and minimum nutritional requirements is necessary if we want to understand the true nature and extent of poverty in the environment of rapid economic growth.
Following the adjustments and recomputation of poverty line by the present author in 1989, two 'new' poverty lines have been derived, one for urban households and the other for rural households. (See the Appendix of Medhi et al., 1991, and Medhi, 1994). The new poverty lines for 1988 were 10,382 baht per person per year for urban population, and 6,868 baht per person per year for rural population. These lines with appropriate price adjustments were then applied to the 1988 SES, 1990 SES and 1992 SES to arrived at Series IV of poverty incidence which were presented in the last three columns of Table 3.5. It can be seen that the overall poverty incidence under the new poverty lines in Series IV has gone up from 22.8 per cent to 48.8 per cent in 1988, from 18.6 per cent to 43.2 per cent in 1990, and from 13.7 per cent to 36.5 per cent in 1992. Just take the situation in 1988 first. These new poverty incomes have increased by 67.3 and 68.5 per cent for urban and rural population compared to the old poverty incomes (see the bottom of Table 3.5), but the increase in overall poverty incidence has been more than 114 per cent. This indicates that a large proportion of the people have clustered around just above the poverty income. When the poverty income is raised, this large group of the people promptly falls under the new poverty line, raising the head count ratio by more than one hundred per cent.
As has been argued elsewhere, these new poverty lines may look high, but they have been quite comparable with poverty lines recently computed in other countries. If one does not want to start a new poverty series in Series IV, at least these two new poverty series (III and IV) should be presented together to make sure that the changes in population structure, nutritional requirements, and consumption patterns have been taken into account. When this is done, it should be obvious that the extent of poverty in Thailand is still quite serious, especially in the rural areas where the new incidence of poverty was still estimated at 55.7 per cent in 1988, 49.3 per cent in 1990, and 42.4 in 1992. In the Northeast the new poverty estimates have shown that more than half of the population in the rural Northeast still live in poverty in 1992. No doubt the rapid growth between 1988 and 1990 has alleviated some of the poverty, but when nearly half of the rural population still live in poverty, this should be enough cause for concern.
Chart 2 summaries the incidence of poverty in all four series in some graphical details. In general, the decline in poverty incidence could be taken for granted in all series, except for the year 1986 in Series II. If this year is omitted, then the declining patterns resume. Of course, Series IV has shifted the incidence to a much higher level as discussed earlier.
4. Poverty Profile and Correlate
4.1 Socioeconomic characteristics of the poor and poverty trends
Table 4.1 presents the distribution of the poor by some salient characteristics (using the 'old' poverty lines). For instance, it is found that even in 1992, more than 75 per cent of the poor were headed by agriculturists (farmers). About 84.2 per cent of the poor lived in villages in 1990, compared with 12.0 per cent in sanitary districts, and 3.8 per cent in municipal areas. There were larger proportions of the poor whose heads of households aged 50-59 and 60 and over. This increase in the aged poor is something which could pose a serious social issue in the future. As for the educational level of the heads of poor households, they were almost entirely those who had no formal education, or only elementary education.
Apart from poverty incidence or head-count ratio which gives a simple indication of the extent of poverty, we can take two steps further to analyse the existing poverty conditions in some more details. One is to compute the 'income gap ratio (I)' of poverty condition which measures the extent to which the poor's income falls short of poverty line, and the other is compute the 'poverty gap ratio (PG)' of poverty condition which indicates the proportion of total income or resources necessary to bring every unit below poverty line up to the poverty line. These two ratios are presented in Table 4.2 along with poverty incidence (or head-count ratio) for comparison about poverty conditions in 1988, 1990 and 1992.
From this table, it may be seen that while the incidence of poverty fell across the board from 1988 to 1992, the income gap increased first between 1988 and 1990 before declining in 1992. For example, in the rural areas as a whole, the income gap increased from 29.9 per cent in 1988 to 33.4 per cent in 1990 before declining to 25.6 per cent in 1992, and in the whole urban areas the increase was from 30.2 in 1988 to 45.4 per cent in 1990, and then a fall to 31.0 per cent in 1992. What this means is that during the first two years between 1988 and 1992, while income growth pushed a larger proportion of the people out of poverty, those who remain in poverty found it harder to reach the poverty threshold than before. In other words, those fewer people who are left in poverty could be called the 'hard-core' poor. The situation improved in 1992, however, when the increase in real income had helped reduced the existing income gap. However, the poverty gap, that is the proportion of overall income that could move every poor person above poverty, appeared to have fallen in 1990 and 1992 compared to 1988 in the rural areas (from 8 per cent to 6.9 and 0.4 per cent, respectively, in 1990 and 1992). This should have an important policy implication in the sense that the burden of poverty alleviation by the State should become less as the country develops and the proportion of the poor to total population declines.
4.2 Changes in Income Inequality
The above sections have demonstrated very clearly that rapid economic growth has brought about drastic decline in the incidence of poverty. But what about income inequality? It would be ideal if the reduction in poverty also coincides with reduction in income inequality. Unfortunately, it has proven not to be the case in Thailand as surveys after surveys have shown that the distribution of income of the Thai households has become worsened as the country develops and household income increases.
Table 4.3 presents a simple distribution of income by quintile group from 1962/63 to 1992. Because of the differences in the use of income concepts between the earlier years and the later years, the data again presented in two series. Series A covers the period from 1962/62 to 1971/73, and Series B covers the period from 1975/76 to 1990. In Series A where only money income is included in the estimate of income share, the inequality seems to greater with the lowest income quintile receiving less and less income from 1962/63 to 1971/73, and the top income quintile receiving more and more income during the same period. The Gini coefficients for these three periods are 0.563, 0.555, and 0.605, respectively.
Starting from 1975/76 the use of income concept became more standardised, and the intertemporal comparison became more consistent. Although the starting income share may be different, the trends in the change of income share is unmistakably the same. With the exception of the unusual 1986, the income share of the poorest quintile fell continuously as that of the richest quintile rose continuously. In 1975/76, for example, the income share of the lowest quintile was 6.1 per cent compared with 49.3 per cent of the highest quintile. The so-called 'top-to-bottom' ratio (T/B Ratio) of income inequality for this year was 8.1, increasing to 15.6 in 1992 with the lowest quintile having its income share reduced to only 3.8 per cent, and the highest quintile having its income share increased to 59.4 per cent. The Gini coefficients in Series B, which were lower because the income share of the lowest 3 quintiles increased when compared to Series A, also show a continuously rising trend as the country developed from 1975/76 to 1992. Again not counting 1986, the percentage increase of income inequality as measured by the change in Gini coefficient has become very rapid during the last four years under study. Between 1988 and 1990, income inequality increased by about 2.6 per cent per annum, and between 1990 and 1992, income inequality increased by about 3.8 per cent per annum compared to 0.8 per cent between 1981 and 1988, and 1.0 per cent between 1975/76 and 1981. Notice that the rate of income inequality declined in 1988, prompting many researchers to predict that the Kuznets Curve for Thailand had begun to level off, and if these trends continue, income inequality in Thailand would have fallen after reaching its plateau in the middle of the 1990s. The situations in 1990 and 1992 appear to have scuttled this optimistic conjecture.
The income inequality situation as presented in Table 4.3 can also be depicted graphically, as done in Chart 3. From this chart, the dominant position of the richest quintile over all other quintiles is very clear from its very tall column of income share. More details on the income distribution of households classified into different regions and locations are given in Table 4.4. It is interesting to note that, as a rule, income distribution in rural areas is more equal than that in urban areas. In 1990 and 1992, the Gini coefficients were lowest in Bangkok. This raises a certain question. Normally, it would be expected that variations of income in Bangkok would be larger than any other regions in the country, which would bring about a larger measure of income inequality. The fact that the opposite was true could mean that the survey had failed to capture full income of the rich in Bangkok, or the Bangkok rich are underrepresented in the surveyed sample.
In all, it can be concluded that income inequality in Thailand has increased rapidly during the four years between 1988 and 1992 in step with the rapid increase in economic activities. The situation in Thailand, therefore, presents a classic case where the trickle-down effects did help the poor in the country but only after fully soaking the well-off. This situation will not create any serious social disturbances as long as the economy keeps growing and the average real income of the people in all sectors keeps rising. Only when the country faces sudden hardship resulting in sudden fall in average income, then the issue of income disparities will begin to exert its importance.
4.3 Growth and Redistributive Effects on Poverty Changes
Recently, several researchers have been able to decompose the effects of economic growth and income distribution from changes in poverty measures. What this decomposition has done is that it shows (1) the impact of growth upon change in poverty when the distribution of income does not change, and (2) the effect of income redistribution upon change in poverty when the total income of the society remains unchanged. Following the new decomposition procedure using an axiomatic approach proposed by Kakwani, we also have been able to compute or decompose the growth and redistributional effects of poverty reduction in Thailand between 1988 and 1990, and between 1990 and 1992.
Table 4.5 shows the results of the decomposition of growth and income redistributional effects of poverty changes in Thailand between 1988 and 1990, and between 1990 and 1992. From this table, it may be seen that, nationwide, the head-count ratio fell by -4.26 percentage points between 1988 and 1990, and 4.84 percentage points between 1990 and 1992. In this poverty reduction during Period 1, the growth component accounted for -6.70 percentage points (or -157.28 per cent of the decline) but the redistribution component accounted for 2.44 percentage points of the poverty increase (figure with positive sign, or 57.28 per cent) of the rise in poverty incidence. The net effect would be the combination of the two effects. For 1988, this would mean that the pure growth effect would have reduced the poverty level by 6.70 percentage points instead of 4.26 per cent. And the income redistribution effect alone, assuming that the mean income of households remained unchanged between 1988 and 1990, would have increased poverty incidence by 2.44 percentage points.
The other poverty measures, the poverty gap index and the FGT index, also show similar trends of growth versus redistribution effects during the first period, that is to say, the growth effect helped reduce poverty whereas the income redistribution effect caused poverty to increase. The relative contribution of each of these effects is shown in the last two columns of Table 4.5. It is clear that the growth effect outweighs the redistribution effect, causing a net reduction in poverty incidence across the country. During the second period between 1990 and 1992, however, the income redistribution had turned to help poverty alleviation, at least with regard to head-count ratio. It will be seen that the redistribution effect on poverty reduction during 1990-1992 was -0.46 or contributing about 9.50 per cent towards the total reduction of poverty. But the PGap index and FGT index still showed poverty increasing effects of income redistribution component of poverty change (although the magnitude of this poverty increasing effect is small).
One of the most obvious conclusions from the above results is that the redistribution effect has become more conducive to reducing poverty incidence as time passes. Although the sign of the redistribution component in poverty reduction during Period 2 between 1990 and 1992 is still positive, meaning that it still caused the poverty to get worse, the size of this effect has become much smaller compared to Period 1. In other words, the trickle-down effect seems to work in Thailand where the beneficial growth effect has eventually led to beneficial redistribution effect later. The HCR has already shown poverty-reducing effect of income redistribution between 1990 and 1992. If this has gone on long enough, the income redistribution effect on the FGT index will have become poverty-reducing as well, at least that appears to be the trend of the movement of this income redistribution effect.
To conclude, the recent change in the Thai economy has helped reduce poverty incidence across all regions. The growth component of this change was shown to be the major factor explaining poverty reduction, with the redistribution component working in the opposite direction, that is causing poverty incidence to increase although this latter effect had weakened during the second period (1990-1992) compared to the first period (1988-1990), and showed a tendency to become a poverty-reducing factor later. Whether this conjecture is true must be confirmed by the result of the new socioeconomic survey in 1994 which should be available soon.
5. Impacts of Macroeconomic Policies on Poverty and Income Inequality
Against the background of the above poverty and income inequality conditions, this section will analyse and discuss the impacts of several macroeconomic policies during the last two decades of development efforts upon poverty and income inequality in Thailand. It should be mentioned at the outset that the level of analysis and discussion conducted in this section can only be cursory and tentative as there exist few definitive studies that address the above issues directly within the said time periods. Even when such studies exist, the techniques used often adopted very restrictive assumptions such as perfect competition in price and output, complete market clearing, perfect mobility of resources, and so on. The outcomes or findings of the study under such assumptions must, therefore, be examined with great caution. Realistically, it is very difficult to isolate the effects or impacts of specific macro policies under a given situation unless we are able to hold everything else constant, which is hardly possible in the real world. The impact of a given macro policy could be influenced greatly by extraneous factors which cannot be easily identified. It is, therefore, important to realise that the impact of each macro policy can only be tentative and often impressionistic.
We have selected five major macro policies that we believe to have some impacts on the poverty and income inequality of the Thai households. These policies are general development policies as shown in the objectives of each economic and social development plan, industrial location and industrial protection policy, monetary policy and financial reforms, public expenditure policy and budgetary process, and tax policy. Moreover, we may be able to touch upon the effects of other government interventions such as minimum wage legislation and social security policy. These policies will be discussed in turn.
5.1 General development policy
As mentioned earlier, since the first plan the government had adopted basically market approach in developing the Thai economy. This general development policy entailed the role of the private sector as the prime mover of the Thai economy, with the public sector providing the supporting role. The First National Economic Development Plan launched in 1961 was not a directive plan in the mould of the socialist economic system, but an indicative plan where the government stated its investment intention and set its direction of public economic policies. As can be seen from Table 5.1, the overall objectives of the First Plan were simple: economic expansion, industrial production, and private investment promotion. The government began its large public spending on irrigation and infrastructure, while in the meantime, establishing private investment promotion activities and encouraging the first foray of import-substituting industrialisation in the private sector, especially in textile industry. In the succeeding two plans, the economic growth and expansion theme was continued as the top priority, to be supplemented by such objectives as economic stabilisation and maintenance of national security. The last objective concerning national security was made important by the threat of communist insurgency in the country, and the escalating Vietnam war, and it was to go on until the end of the 1970s.
At the end of the Third Plan, the country was in a series of domestic political turmoils which affected the ways the Fourth Plan was drafted and implemented. The government was distracted by various political and economic problems during the Fourth Plan period so that it could not really concentrate on its proper economic management. In the Fourth Plan one began to see the inclusion of such welfare-oriented objectives as the reduction in the economic and social gaps among people, the improvement of the quality of the population, and the conservation of the environment and natural resources. This was an influence of the sentiment of the student-led mass uprising which toppled the military government in 1973. Although the student movement was crushed in 1976, the government still kept these objectives, at least on papers. The effects of the second oil price increase coupled with the severe drought in 1979 had dealt a crippling blow to the fiscal position of the government. All these had made the role of the government as a leading economic actor during this Fourth Plan period very ineffective, and the country entered the 1980s with a much weaker economic state than any other times in the past.
The Fifth Plan, therefore, called for economic rehabilitation and structural adjustments. Difficulties in the external sector forced the government to borrow from the IMF for the first time in many years. The external debt and payments crises returned to normal quickly, however, with an unexpected drop in oil price and the utilisation of Thailand's own gas field in the Gulf of Thailand. The fortunate events after mid-1980s such as good result of the currency devaluation, the appreciation of the yen and the ensuing influx of the second wave of Japanese direct investment, and the success in foreign tourism promotion, provided much relief to the government in its crucial economic management. But before we move on the Sixth Plan which saw Thailand in the new era of economic development, it should be mentioned that despite the major objectives of economic rehabilitation and structural adjustments, the Fifth Plan was well-known also for its first and only special supplementary plan on poverty alleviation. This was the plan where the government set up criteria to classify districts into various categories of poverty, and specific policy packages designed and carried out to improve such poverty situations. Some of the policy packages implemented during this plan period are still operating today.
Once the economy was out of the logjam and started to move again, the objective of economic growth and expansion returned, as we can see in the Sixth Plan. The government was trying to maintain stable rate of growth by putting more emphasis on employment generation. Due to unexpected boom in the economy towards the end of the 1980s, the targets of the Sixth Plan was changed many times during the plan. The average growth rate of GDP during the Sixth Plan (about 10.9 per cent) was highest ever achieved under any other plans. The economy now seemed able to run by itself without help from the government. This, indeed, had enabled the government to do something more than just short-term economic management under crisis situation. In the Seven Plan, therefore, we can see the government putting much more attention to the matter of the so-called 'Spreading Prosperity to the Countryside". This was mainly the policy of the new government under the leadership of the Democrat Party which had maintained the tradition of social welfare orientation. Several programs and projects targeted for the rural areas in general and the rural poor in particular were launched. The preliminary results seem to have shown that the effects on the rural areas and the rural poor were favourable.
The Seventh Plan will end in 1996 and the Eight Plan will begin in 1997. The National Economic and Social Development Board (NESDB) has come to realise that its role in providing the guidance for the economy is no longer as crucial or as important as before. So, it has attempted to change both the objectives and the techniques of the Eighth Plan. As can be seen from Table 5.1, the objectives of the Eight Plan have more emphasis on the lives of the Thai people than the traditional economic matters such as economic growth and stability. It promises to be a new kind of plan where large segments of the population have had a change to participate in its drafting.
From the above account of general development policy, it is quite clear that the Thai government in the past was basically concerned with economic growth and expansion. Whenever the timing allowed, the Thai government was always active in promoting higher economic growth and expansion. But whenever the economy is in some kinds of economic difficulties, the government would quickly act to stabilise it. Stabilisation in Thailand often mean the control of money supply and credit expansion with an aim to finally control the inflation. Specific poverty and income redistributive policies hardly had any chance of being considered as a separate policy package by the government. In the period before mid-1980s, the government was not in a good fiscal health. It, therefore, could not do much in terms of public policies or public assistance towards the poor and the needy. It is only after the government has had fiscal surpluses during the last several years that many programs or projects aimed at helping the rural areas and/or the rural poor were conceived and implemented. The benefits to the poor were probably generated by the overall growth in the economy in the form of a "trickle down" from the industrial sector to the agricultural sector, from cities to the countryside, from professional and even labour groups to self-employed agriculturists, and so on. With the government in a much improved fiscal condition, its role in poverty alleviation could be strengthened in the future.
5.2 Industrial location and industrial protection
When the Thai economy first embarked upon industrialisation it was of an import substituting kind. As Suphat (1995) pointed out, this import-substitution policy was carried through to the Second Plan where more attention was given to industries that utilised domestic raw materials and to labour-intensive industries. In the Third Plan, industrialisation and trade strategy had begun to change from import substitution towards promoting exports. Special promotion privileges were provided, particularly for export-oriented firms. Decentralisation of investment activities away from Bangkok became an additional feature of industrial policy. These policies continued in the Fourth, Fifth, Sixth and Seventh plans. In the Fourth Plan large-scale exporting firms and trading companies were encouraged, and an export-processing zone was established. The Fifth Plan placed a new emphasis on industrial adjustment and encouraged small-scale industries. In the Sixth Plan the emphasis was on restructuring tax incentives. Attention was also given to agro-based industries and the diversification of manufactured products and export markets. As far as the Seventh Plan is concerned, the export-oriented policy has continued, with addition reference to the diversification of export market as well as industrial location.
After more than 30 years of general industrialisation policy described above, the growth rates of industrial production have been quite satisfactory (see Table 2.1). But because the industrial locations have clustered around Bangkok and vicinity, the benefits from industrial activities have concentrated around here too. As Nipon (1995) pointed out, several factors worked again the success in rural industrialisation in Thailand, factors such as low population density, low purchasing power and the slow growth of the agricultural sector on the demand side, and the lack of physical and social infrastructure, and policy bias against small firms on the supply side. Again the trickle-down effect works here because a large part of industrial manpower consists of those farmers who migrated into cities or industrial centres to earn an additional income and remit such income to the villages. Improvement in the income position of the people has accompanied greater locational disparity between urban and rural areas.
Another subject of interest in the industrial policy of Thailand is the extent of its industrial protection. Like many other industrialising countries, Thailand adopted protective tariff policy during its initial stage of industrialisation. Suphat (1995) pointed out that this level of tariff protection in Thailand fluctuated over time. In the 1960s Thailand had one of the lowest levels of tariff protection in Asia, with nominal tariff protection for final consumer goods and intermediate goods averaging around 25-35 per cent, and for capital goods around 15-20 per cent. In 1969, however, Thailand suffered a large balance-of-payments deficit of over 913 million baht, forcing the government to increase import tariffs as a means of solving this problem. As a result the average nominal tariff rates for consumer imports in 1971 increased to 30-55 per cent while the rates for intermediate and capital imports remained unchanged. But two years later inflation in the aftermath of the first oil shock forced the government to lower import tariffs on raw materials, intermediate products and capital goods in order to reduce the costs of industrial production.
In 1975 Thailand again suffered major balance-of-trade and payments deficits, brought on by the above-mentioned oil shock. Again the government resorted to increased import tariffs: the effective rate of protection for all industries (except food, beverages and tobacco) increased from 44.2 per cent in 1971 to 90.3 per cent in 1978, with higher degrees of protection-rate differentials across industries. From the above pattern of policy changes it is quite clear that from 1961 to 1981 import tariffs were used as a means to raise government revenue, to correct balance-of-payments problems and to fight inflation. A major result of this policy was an increase in the intensity of industrial protection. Agricultural products suffered a negative rate of protection because they not only had to pay export taxes, but imports necessary for agricultural production such as fertilizers and farm machinery were also subject to import tariffs. On the other hand, domestic manufacturing industries, whether for import substitution or not, benefited from this industrial protection. Examples of products receiving high effective protection during these two decades were textiles, leather products, cooking oils, bakery and wheat products, cosmetics, rubber products, ceramics and earthenware, household electrical goods, motor vehicles, jewellery and cigarettes.
The Thai government had realized the implicit danger of such industrial protection. Not only did protected industries lack the incentive to increase their production efficiency, there was also a tendency to reallocate resources from efficient export industries to less efficient import-substitution industries. But various attempts at reducing industrial protection was met with deficits in the external sector which forced the government to resort to the use of tariffs as a mean to cut the deficits. It may be concluded, therefore, that the government's efforts to reduce industrial protection in Thailand during the 1980s were not successful due to the recurring problem of fiscal and balance-of-payments deficits. However the beginning of the 1990s saw major changes in the structure of industrial protection in Thailand. In 1990, for example, the government lifted its ban on the importation of motor vehicles with engine size smaller than 2,300 cc, a ban that had been in force since 1978. It also abolished the limit on the number and model of automobiles that could be assembled or produced in the country. The import tariff on machinery, electrical equipment and accessories was reduced from 20 per cent to 5 per cent. In 1991 the import tariffs on computer and computer products were reduced from 10-40 per cent to 1-5 per cent, and on machines, equipment and chemicals for the preservation of energy and protection of the environment from 10-40 per cent to 0-5 per cent. Under the leadership of Prime Minister Anand Panyarachun in 1992, the government planned to reduce the number of tariff rates from about 60 to just five by 1997. These five rates were 0 per cent for raw materials in short supply within the country, 5 per cent for other raw materials, 10 per cent for intermediate products, 20 per cent for finished manufactured products and over 20 per cent for products whose domestic protection was still needed. Throughout 1992 the government reduced the tariff on more than 1,000 items within 24 major commodity groups. It was expected that with two more major reductions between 1993 and 1997 the target could be reached as planned.
What could be the effects of industrial protection upon poverty and income distribution of the Thai people? In an interesting study by Isra Sarntisart (1995) the above question has been answered with a unique way. Isra constructed a multi-sector, general equilibrium model of the Thai economy with the population classified into urban and rural areas, each of which is further classified into 5 income groups. Under this general equilibrium model, the question is asked: what will happen to the income position of these people and their distribution when the average import tariff is reduced by 10 per cent from the existing level ? The effects of this tariff reduction are traced back to the change in income and consumption of these households through simulation to see whether the post-adjustment poverty incidence and income inequality have improved or deteriorated.
Table 5.2 shows the result of the simulation by Isra. Poverty incidence is indicated by the HCR and FGT indices, and income inequality is indicated by SCV or Square of Coefficient of Variation (of income) index. The target population is classified by region and type of community. The figures in the Before-Tax column show the change in the three indices as a result of a 10 per cent reduction in import tariffs without any government compensation for the expected loss of revenue from tariff collection. The figures in the After-Tax column show the change in the same indices when the government compensated for the loss of revenue through the increase in direct income tax. Overall, it may be seen that the 10 per cent reduction in protective tariff would have resulted in a reduction (figures with minus sign) in both poverty incidence and income inequality. For example, the HCR for the whole kingdom would have fallen by 0.152 per cent, the FGT by 0.4077 per cent, and the SCV by 0.0307 per cent. When direct tax is imposed on the people to make up for the loss of protective tariff revenue, the HCR for the whole kingdom fell by 0.1674 per cent, the FGT by 0.3567 per cent, and the SCV by 0.5203 per cent. The direct tax system has clearly improved the post-adjustment income distribution because the higher income classes would bear great tax burden than the lower income classes.
In an earlier study using similar general equilibrium model, Teerana and Atchana (1989) investigated the effect of increase in manufacturing exports of Thailand on income distribution of the general Thai people. The results from their macroeconomic model on income suggested that during 1983-1987 a hypothetical one per cent increase in manufactured exports led to approximately 0.41 per cent rise in wages, 0.64 per cent rise in unincorporated enterprises income, and 0.61 per cent in corporate factor income. The higher increase in non-wage income coupled with the fact that the income earners in the non-manufacturing sector had received less benefits from increase in the growth of manufactured exports had resulted in the simulated income distribution become more unequal when such exports increase.
5.3 Monetary policy and financial reforms
One of the most successful macroeconomic managements in the recent Thai development in how the Thai authorities maintained the monetary and financial stability under high economic growth. The rate of inflation during 1987 to 1990--the super high growth period--averaged only 4.5 per cent per annum. During the first four years of the 1990s, this same rate of inflation was maintained. Only towards the end of 1995 the rate of inflation had gone up to more than 7 per cent mainly due to the high food prices brought about by severe floods throughout most of the country. But the overall, annual rate of inflation was still only 5.8 per cent. Although this high rate continued during the first half of 1996, it was brought down to less than 6 per cent during the third quarter and expected to fall below 5 per cent at the end of the year. The credits to this price stability must be largely given to the Bank of Thailand, the Thai central bank whose major responsibility is to conduct the country's monetary policy. The Bank is well known for its steadfast concern to keep inflation under control, and will do its utmost to achieve this goal. At times, the control on money supply and credit expansion was so stringent that many private firms experience severe liquidity problems bordering on bankruptcy.
Nevertheless, if the effects of inflation on income and consumption of the poor and the less well-off is more negative than the effects on the non-poor and the relatively better-off, then keeping inflation under control must be income equalising and help alleviate poverty, although there exists no empirical study that specifically measures the impact of inflation on incidence of poverty. But in addition to controlling money supply and credits, monetary policy also includes the management of domestic interest rate and the value of the currency. The effects of these latter aspects of monetary policy upon poverty may be difficult to see, but it is speculated that the liberalisation of domestic interest rate setting and the floating of the exchange rate have excused the Bank of Thailand from direct involvement in poverty alleviation.
Financial reforms undertaken by the Bank of Thailand during the last few years may have some repercussions on poverty and income inequality. Until the late 1980s, the Thai financial sector was still considered relatively underdeveloped and overregulated. Exchange transactions were still under strict central bank's control, and so were interest rate ceilings, reserve requirements and new bank and branch banking operations. Assets management of commercial banks were closely monitored and financial instruments were limited. These conditions would certainly inhibit future growth of the economy if allowed to remain for too long. So, beginning in 1989 the Bank of Thailand launched it successive plans of financial reforms. What have been accomplished so far are: interest rate liberalisation, exchange control deregulations, decontrol of assets management of financial institutions, and the setting up of off-shore banking facilities. In the current Plan III of financial reforms, the Bank aims to achieve 7 major objectives, namely,
Without a doubt, the above reforms should have promoted efficiency in the commercial bank operations and competition, leading to higher growth in the economy and higher benefits to bank customers in terms of better services and lower prices (service charges). Direct benefits upon poverty may not be so obvious but its alleviation could be traced through greater efficiency and growth in the economic system. Let us take a look at the expected outcomes of recent financial reforms to see how they affect local poverty. Some of these outcomes are:
As mentioned earlier, the above outcomes of financial reforms increase the efficiency of banking operations, which primarily benefit modern industrial, trade and service sectors. Effects on poverty may be tenuous at best.
5.4 Tax policy
Several tax incidence studies in Thailand have indicated that the overall tax system of Thailand is regressive, and as such contributing to greater income inequality. The study by the present author (Medhi, 1980), for example, found that the post-tax income distribution of the Thai households between 1968/69 and 1975/76 as measured by the Gini coefficient worsened by about 15 per cent compared to the pre-tax situation. The type of taxes that the government collected could also affect poverty in the country. For example, tax on consumption tends to burden low-income tax payers relative more than high-income tax payers. Therefore, the tax system which relies more on consumption as the base for tax revenue would tend to hurt the poor relatively more than the nonpoor. This is the case of Thailand where the majority of tax revenue is still collected from consumption sources.
The situation has begun to change recently, however. The followings are some of the changes in tax policy seen since the mid-1980s:
(a) The share of income taxes in total tax revenue has started to increase. This is partly due to greater efforts on the part of the Department of Revenue to collect more taxes--personal income tax as well as corporate income tax--by setting up several tax offices in various locations throughout Bangkok to facilitate tax payment, and by streamlining the tax procedures and the use of modern equipment and technology. The boom in economy in the latter half of the 1980s also gave rise to higher corporate income tax collection.
(b) The significance of the taxes on foreign trade has declined, not because of the reduced trade value, but because of the move towards freer trade under regional and international trading arrangements such as the upcoming ASEAN Free Trade Area (AFTA), the general trading direction of the Asia Pacific Economic Cooperation (APEC), and the general tariff reductions under the newly created World Trade Organisation (WTO) of which Thailand is a member. The taxes on exports of Thailand, especially rice exports, have been almost completely abolished, which help local producers (rice as well as other upland crop farmers).
(c) The basic sales tax of Thailand, the Business Tax, was replaced by the Value-Added Tax (VAT) in 1992. This is considered one of the most important changes in tax policy in Thailand because it took more than 10 years in preparation and in getting through various political hurdles to materialise. The VAT, though a consumption-based tax, is fairer to the former Business Tax because the added value is taxed only once, and the tax avoidance has become more difficult due to the built-in cross-checking mechanism.
(d) The excise or selective sales taxes especially taxes on liquors and tobacco have maintained their share of the total tax revenue. This means that these sumptuary taxes continue to burden low income consumers relative to high income consumers.
(e) Contributions from government enterprises have increased, and the central government no longer provides net subsidies to these public enterprises. Many of these large enterprises such as electricity generation, telephone and telecommunications have acted like private companies, charging market prices for their services and raise funds from private capital market.
(f) Many new local governments have been set up particularly in rural areas. Fiscal autonomy (ability to raise local taxes, especially property taxes) is gradually being given to these local governments.
The effects of the above changes on the size and share of total revenue are shown in Tables 5.4a, b, and c. For example, the share of direct taxes had increased from 20.88 per cent in 1989 to 31.98 in 1995; the share of indirect taxes had fallen from 71.45 per cent in 1989 to 59.51 per cent in 1995. During the same period, import duties fell from 21.76 per cent in 1989 to 16.39 per cent. It may appear that the VAT has generated lower tax revenue than the Business Tax it replaced. This is true and could be explained by the fax that there is always a tax loss during the transition. But the VAT collection has shown sign of increase after more than three years of implementation.
In all, tax policy which relies more on direct taxation should improve the existing income distribution. But one must be careful to distinguish the progressive tax rate on wage-income and the (lower) proportional tax rate on non-wage income in Thailand because this could bring about greater income inequality. On poverty, however, the present tax policy seems to have little impact, except probably the expansion of local governments' fiscal autonomy where the local authorities have more power to collect local taxes for their own use in the local areas.
5.5 Public expenditure policy
This is perhaps the most important policy that has direct impact upon poverty in the country. Of course general government spending which aims at fulfilling the three functions of the public sector (efficient resource allocation, fair distribution of income, and stable price and employment) will likely to bring about smoother functioning of the economy, including appropriate welfare level of the whole population. However, when general government spending fails to provide sufficient level of welfare to specific groups of population, the government may supplement general spending with specific spending for specific target groups who need special assistance. This target-group oriented approach to government spending policy has become widely accepted as an addition to general economic growth as a major means to alleviate local poverty.
In contrast to tax policy, the general expenditure policy of the Thai government was found to be income equalising, that is to say, the overall effects of government spending benefit the poor relatively more than the non-poor. The post-expenditure income distribution, therefore, is more equal than the pre-expenditure income distribution (see Medhi, 1980). Nevertheless, this income equalising effects of government expenditure have just offset the income disequalising effects of the government taxes, making the so-called pre-fisc and post-fisc income distribution practically unchanged. In other words, the role of the Thai government through its fiscal policy was neutral with respect to income distribution of the Thai people. To effect greater equality of income distribution, and the reduction of poverty incidence, the government must change some of its policies.
These changes have slowly taken place in Thailand in the last few years. As shown in Tables 5.5, 5.6a and 5.6b, the capital spending the central government has increased substantially between 1987 and 1995. For example, in Table 5.6a, the share of capital expenditure in the total expenditure increased from 14.26 per cent in 1989 to 31.12 per cent in 1995. This capital spending is needed to cope with the shortage of infrastructure in the economy which has begun to adversely affect the prospects of higher economic growth in the future. Again, based on the premise that higher growth will bring in higher income and reduce poverty incidence, this rapid increase in this component of public expenditure should work towards further reducing local poverty. On functional classification of public expenditure, it may be observed that the share of economic services spending has increased from 14.65 per cent in 1986 to 26.49 per cent in 1995. Similarly, the share of social services spending has increased from 29.45 per cent to 37.78 per cent within the same period. This happens at the expense of the defence spending which fell in its share from 20.13 per cent in 1986 to 15.01 in 1995. Both economic and social services spendings should work towards greater poverty alleviation in the future.
Recently, the government began to put more emphasis on specific poverty-oriented policies towards specific groups of people. This is generally carried out under the aegis of the national rural development programs. In 1996, more than 200 projects have been selected for nationwide rural development for that year, and out of these projects, about 30 programs were singled out as specific poverty-oriented policies. Examples of these projects include Programs to Assist Farmers and the Poor of the Prime Minister's Office, the Welfare Programs for the Aged in the village of the Department of Public Welfare, Ministry of Labour and Social Services, the Poverty Loan Programs of the Ministry of Interior, and so on. The total amount of budget for these programs were still small at this juncture. For instance, the budget for these poverty-oriented programs in 1995 amounted to only 3.7 per cent of total central government budget for that year. But this category of public expenditure in increasing rapidly. And it is hoped that with the government now in control of huge treasury reserves accumulated over many years of fiscal surpluses, they can decide to play more active role in the policy of poverty alleviation.
5.6 Other government interventions
There are several other government interventions in the private economy that are supposed to have impacts upon local poverty. Minimum wage legislation is one, while the social security program is another. Minimum wage legislation may be criticised for encouraging the substitution of machine for labour, but if the substitution is not perfect, then those workers who have received minimum wage and whose services cannot be replaced by machine could stand to gain from this minimum wage law. It may be argued, however, that since the average wage in most firms in the manufacturing sector is already higher than the minimum wage, the impact of this minimum wage law is minimal or negligible. On social security system, this had just started about 6 years ago. So far, the benefits accrued to industrial workers have been recognised, and more and more workers have enrolled in the program, resulting in the social security funds accumulating rapidly in the past few years. More and more the 'safety net' provisions will be put in place by the government to try to help the poor and the needy as the situation arises.
The main purpose of this paper is to trace the changes in poverty and income inequality in Thailand over the past 30 years from 1962/63 to 1992. It has pooled together various poverty and equity studies by various researchers, using different techniques and tools of analysis. On poverty, most studies used the nutritional adequacy approach as a basis for finding a poverty line, and once the poverty line is established, the head-count ratio or poverty incidence is used as a popular indicator of the extent of poverty in the country. On income inequality, income share by quintile group is used to show the change in relative income position of the households and population in various regions and locations. The overall Gini coefficient is also used to show the extent of income inequality.
The records over the past 30 years have shown that poverty incidence in Thailand has fallen continuously from about 57 per cent of the population to about 13.7 per cent, using the original (old) poverty lines. However, when a new poverty line which is computed from a new set of population structure, nutritional requirements, and consumption pattern is used, the poverty incidence is still shown to be quite high. Poverty is still highly concentrated in the rural Northeast, with Bangkok having the smallest percentage of the poor among its population. Most farmers are still found to be poor, whereas the labourers have benefited from recent increase in manufacturing activities and have earned a larger income. However, while the incidence of poverty is declining, the distribution of income has become worsened. The Gini coefficient has increased from 0.426 in 1975/76 to 0.504 in 1990 and 0.543 in 1992, and the rate of increase in this income inequality has become more pronounced in the two years between 1990 and 1992.
On the outcomes of macroeconomic policies, the records of the past 30 years have shown that the Thai government have emphasised first and foremost economic growth and expansion. When the economy was in difficulty such as external imbalance or domestic inflation, the immediate macro policies adopted would be to quickly stabilise the economy and continue on the economic growth path. Poverty and income inequality have never really received top priority in the government macroeconomic policies. However, it must be recognised that growth-oriented macroeconomic policies have brought about poverty reduction through the trickle-down effects, and as such economic growth must still be looked upon as an important pre-condition for a sustained poverty alleviation. But growth alone may not be adequate for a sufficient and timely solution to poverty problems, and this calls for targeted approach to poverty alleviation where specific poverty-oriented policies are carried out that aim at redressing the problems of the poor directly.
Finally, although it can be shown that the incidence of poverty has been declining rapidly in the last few years, this level of poverty still translates into several million of poor people. Moreover, if a new poverty line which incorporates changes in population structure, new nutritional requirements, consumption patterns, and prices is used the poverty incidence is still found to be disturbingly high. As the remaining poverty becomes more difficult to remove, perhaps a more targeted approach to helping these poor could be a helpful supplement to the growth effects alone. As for the problems of income inequality, it has been mentioned earlier that this is not an immediate problem as long as the economy keeps growing. But the government must be prepared for the situation when the income of the poor and the haves-not could no longer expand. It is a wiser policy to keep monitoring the changes in poverty and income inequality and plan a strategy to cope with it before more serious problems occur.
References and Selected Bibliography
Chalongphob Sussangkarn (1989), "Structural Changes and Income Distribution in Thailand," paper presented at the International Symposium on Making the Economies More Efficient and More Equitable, organised by the Institute of Economic Research, Hitotsubashi University, Tokyo, November 1989.
Ikemoto, Y. (1992), Income Distribution in Thailand, Tokyo; Institute of Developing Economies, 1992.
Isra Sarntisart (1995), "Trade Liberalisation in Thailand: Income Distributional Impact and Financing Problem", Asian Economic Journal, vol. 9, no. 3, November 1995, pp. 261-292.
Khan, A.R. and Eddy Lee (1983), Rural Poverty in Asia, Bangkok: ILO-ARTEP.
Medhi Krongkaew (1985), "Agricultural Development, Rural Poverty and Income Distribution in Thailand," The Developing Economies, Vol. 23, no. 4, December 1985, pp. 325-346.
Medhi Krongkaew (1980), Government and the Income Gap of the People, Bangkok: Thammasat University Press.
Medhi Krongkaew (1986), "Imbalance in Agricultural Development and Industrialisation, and Its Impact on Social Welfare: A Case of Thailand," paper presented at the Eight World Congress of the International Economic Association, New Delhi, December 1-5, 1986.
Medhi Krongkaew (1987), "Poverty and Income Inequality in Thailand," paper presented at the International Conference on Thai Studies, the Australian National University, Canberra, July 4-7, 1987.
Medhi Krongkaew (1989), "The Distributive Impact of Government's Policies: An Assessment of the Situations in Thailand," Bangkok: Faculty of Economics, Thammasat University, 1989.
Medhi Krongkaew (1990), "Poverty and Public Policy in Thailand," paper presented at the Symposium on Poverty Alleviation in the 1990s, organised by the Sasakawa Peace Foundation, Tokyo, March 5-6, 1990.
Medhi Krongkaew (1994), "A New Poverty Line for Thailand and Its Welfare Implications," The Knowledge of Thai Economists 1992, Bangkok: the Economic Society of Thailand, 1994.
Medhi Krongkaew (1995), "Poverty Assessment Update", unpublished research report submitted to the World Bank Bangkok Office.
Medhi Krongkaew (1996), "Financial and Fiscal Reforms in Thailand in the 1990s", paper presented at the ASEAN-ISIS Conference on Economic Reforms and Implications organised by the Singapore Institute of International Affairs, Singapore, 1-2 March 1996.
Medhi Krongkaew and Aphichart Chamratrithirong (1984), "Poverty in the Northeastern Region of Thailand," research report prepared for the Council for Asian Manpower Studies and the International Development Research Centre, 1984.
Medhi Krongkaew and Chintana Chernsiri (1975), "The Determination of Poverty Level in Thailand," Thammasat University Journal, Vol. 5, June-September 1975, pp. 48-68 (in Thai).
Medhi Krongkaew and Pranee Tinakorn (1985), "Poverty and Income Distribution in Thailand, 1975/76 and 1981," Thammasat Economic Journal, Vol. 3, no. 4, December 1985, pp. 54-100 (in Thai).
Medhi Krongkaew, Pranee Tinakorn and Suphat Suphachalasai (1992), "Rural Poverty in Thailand: Policy Issues and Responses," Asian Development Review, Vol. 10, no. 1, 1992, pp. 199-225.
Medhi Krongkaew, Vorawoot Hirunruk, and Orathai Arj-Aum (1987), "A Study on the Urban Poor in Thailand Phase II," research report prepared for the Urban Coordination Division, NESDB, March 1987.
National Economic Development Board (NEDB), National Income Account of Thailand 1966, Bangkok: NEDB, 1967.
National Statistical Office (NSO), Socioeconomic Surveys, various years.
Nipon Poapongsakon (1995), "Rural Industrialisation: Problems and Prospects", in Medhi Krongkaew (ed.), Thailand's Industrialisation and Its Consequences, Basingstoke, Hampshire: Macmillan, pp.116-142.
Oey Meesook (1979), "Income, Consumption and Poverty in Thailand, 1962/63 to 1975/76," World Bank Staff Working Papers no. 364, Washington, D.C., 1979.
Somchai Jitsuchon (1989), "Alleviation of Rural Poverty in Thailand," research report prepared for ILO-ARTEP, Bangkok, December 1989.
Suganya Hutaserani and Somchai Jitsuchon (1988), "Thailand Income Distribution and Poverty Profile and Their Current Situations," research report prepared for the 1988 TDRI Year-End Conference, Pattaya, 17-18 December 1988.
Suphat Suphachalasai (1995), "Export-Led Industrialisation", in Medhi Krongkaew (ed.), Thailand's Industrialisation and Its Consequences, Basingstoke, Hampshire: Macmillan, pp. 66-84.
Suphat Suphachalasai and Direk Patmasiriwat, (1990), "Poverty and Government Policy in Thailand," The Singapore Economic Review, Vol. 35, no. 2, October 1990, pp. 77-101.
Teerana Bhongmakapat (1990), "Income Distribution in a Rapidly Growing Economy: the Case of Thailand," The Singapore Economic Review, Vol. 35, no. 1, April 1990, pp. 161-200.
Teerana Bhongmakapat and Atchana Wattananukit (1989), "The Impact of the External Sector on the Thai Economy and Its Determinants", Background paper no. 7 presented at the 1989 TDRI Year-End Conference, Chon Buri, December 16-17, 1989.
World Bank (1980), Income Growth and Poverty Alleviation, A World Bank Country Study, June 1980.
World Bank (1985), "Thailand: Poverty Review," Country Programs Department, East Asia and Pacific Regional Office, March 1985.
Table 2.1 Sectoral distribution of production and employment, 1960-95
(per cent)
1960 1970 1980 1989 1990 1991 1992 1993 1994e 1995e
GDP (%
share):
Agriculture 39.8 28.3 25.4 15.1 12.7 12.6 12.0 10.2 10.4 10.3
Industry 18.2 25.3 28.4 43.7 44.3 45.6 45.7 46.5 46.7 46.8
(12.5) (16.0 (19.6) (26.7) (27.2 (28.3) (28.0) (28.4 (28.7) (28.9)
(manufacturing ) ) )
)
Services 42.0 46.4 46.4 41.2 43.0 41.7 42.3 43.3 42.9 42.9
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
GDP (%
growth):
Agriculture 5.5 4.3 4.7 9.6 -3.7 5.9 4.2 0.0 3.5 4.3
Industry 10.9 9.3 4.4 16.2 16.3 12.5 10.0 10.8 11.0 11.2
(10.5) (10.1 (4.9) (14.9) (16.1 (12.2) (11.3) (11.6 (12.0) (11.9)
(manufacturing ) ) )
)
Services 8.4 7.3 6.4 11.1 13.1 6.0 7.3 8.6 7.9 7.4
Overall GDP 7.9 6.9 5.4 12.2 11.6 8.1 7.9 8.4 8.6 8.6
Notes: The growth rates in 1960, 1970, and 1980 columns are average
annual growth rates for the 1960s, 1970s and 1980s, respectively.
Percentages may not add to 100 because of rounding errors.
Sources: NESDB.
Table 3.1: Household Income Per Capita per year by region
(current prices)
N. NE. C. S. BMR WK.
1962/63
Whole Kingdom 1,075 993 1,174 1,822 2,346 1,601
1968/69
Whole Kingdom 1,830 1,580 2,790 2,056 3,993 2,490
1975/1976
Municipal Area 8,672 6,671 8,299 7,610 8,284 7,735
Sanitary 4,494 4,847 5,948 4,726 7,238 5,102
District.
Village 3,101 2,606 4,610 3,398 5,354 3,233
Whole Kingdom 3,686 3,030 5,195 4,048 7,246 4,206
1981
Municipal Area 19,086 15,923 15,758 18,307 20,060 17,415
Sanitary 9,528 8,334 10,771 10,077 17,160 9,449
District.
Village 7,345 5,368 9,519 7,421 11,441 6,991
Whole Kingdom 8,447 5,910 10,228 8,880 17,063 9,008
1986
Municipal Area 22,594 20,385 20,369 22,070 24,327 21,013
Sanitary 10,520 10,384 13,983 12,657 21,015 11,762
District.
Village 8,363 5,196 9,837 8,403 17,172 7,144
Whole Kingdom 9,557 6,257 11,445 10,448 21,944 10,133
1988
Municipal Area 25,742 17,602 20,430 22,538 29,880 26,791
Sanitary 11,601 12,856 14,974 14,407 21,938 14,252
District.
Village 9,522 6,868 11,192 9,040 19,684 8,916
Whole Kingdom 11,158 7,804 12,739 11,228 28,098 12,766
1990
Municipal Area 35,725 27,335 30,672 31,049 42,559 38,487
Sanitary 19,269 18,331 21,452 19,826 33,870 21,039
District.
Village 13,502 9,451 16,385 14,205 31,675 12,911
Whole Kingdom 16,032 10,909 18,788 16,870 40,877 18,654
1992
Municipal Area 50,371 42,415 47,437 48,890 63,332 57,382
Sanitary 27,454 24,454 33,019 29,388 54,544 31,387
District.
Village 15,538 12,468 21,099 18,105 40,585 16,458
Whole Kingdom 19,817 14,698 25,715 23,045 59,783 25,560
Source: NSO, Socioeconomic Surveys, various years.
Table 3.2: Real Rate of Growth of Total Household Income, by Region and Location, 1962/63 to 1992.
1962/63 1968/69 1975/76 1963/63 1981-88 1988-90 1990-92
to to to to
1968/69 1975/76 1981 1981
All Nation
North 7.3 -0.6 3.6 2.9 -0.3 15.5 12.5
Northeast 6.1 2.0 0.6 2.8 -0.4 14.0 22.5
Centre 5.9 -0.8 0.0 1.6 -0.7 16.3 24.0
South 0.2 1.2 0.8 1.0 0.2 17.1 24.2
Bangkok 7.3 -4.4 1.6 1.2 0.8 13.3 33.0
Whole 5.7 0.0 1.3 2.1 0.8 14.4 24.6
Kingdom
Urban
North 5.1 0.4 0.3 1.9 5.0 17.6 28.7
Northeast 6.5 -1.7 2.1 0.7 2.3 18.5 30.7
Centre 4.4 0.3 -2.7 0.7 2.6 17.2 39.3
South 2.2 -0.7 0.0 0.4 3.0 12.8 41.1
Bangkok 8.1 -2.9 -0.1 1.5 1.0 13.0 35.6
Whole 7.7 -2.7 -0.2 1.3 3.0 14.8 34.5
Kingdom
Rural
North 7.4 -0.3 2.6 3.0 -0.8 14.7 4.6
Northeast 5.3 3.5 0.4 3.1 -0.9 13.1 19.9
Centre 5.4 0.6 -0.7 1.7 -1.4 15.8 17.1
South -0.9 2.6 1.7 1.1 -0.9 19.8 15.9
Bangkok n.a. -1.6 -4.6 -0.9 4.7 19.2 16.5
Whole 4.8 1.6 0.0 2.1 -0.7 13.9 15.9
Kingdom
Source: National Statistical Office, Socioeconomic Survey Reports,
various issues; and
and Bank of Thailand, Monthly Bulletin, various issues.
Table 3.3:
Average Income
Classified by
Various Factors,
1981-1992
Per capita /year (baht) Annual Growth (%)
1981/a 1986/a 1988/e 1990 1992 1981-8 1986-8 1988- 1990-9
8 8 90 2
Quintile
Quintile 1 2,412 2,280 2,831 3,837 4,810 2.3 11.4 16.4 12.0
(Lowest)
Quintile 2 4,055 3,941 5,091 6,884 8,756 3.3 13.6 16.3 12.8
Quintile 3 5,966 6,058 7,724 10,789 13,902 3.8 12.9 18.2 13.5
Quintile 4 9,197 9,955 12,754 18,368 24,405 4.8 13.2 20.0 15.3
Quintile 5 22,944 27,864 34,605 53,442 76,055 6.0 11.4 24.3 19.3
Region
North 8,270 8,927 11,359 16,032 19,817 4.6 12.8 18.8 11.2
Northeast 5,848 5,860 7,507 10,909 14,698 3.6 13.2 20.5 16.1
Central 9,994 11,161 12,478 18,788 25,715 3.2 5.7 22.7 17.0
South 8,754 9,407 11,170 16,870 23,045 3.5 9.0 22.9 16.9
Bangkok /b 19,920 25,404 30,114 41,893 63,331 6.1 8.9 17.9 23.0
BKK Fringe /c 11,239 14,988 18,301 36,855 45,892 7.2 10.5 41.9 11.6
Community Type
Municipality 18,468 23,472 26,820 38,487 57,382 5.5 6.9 19.8 22.1
Sanitary 10,094 11,444 13,486 21,039 31,387 4.2 8.5 24.9 22.1
district
Village 6,874 7,037 8,761 12,911 16,458 3.5 11.6 21.4 12.9
Occupation of
Head
Professn'l & 20,472 29,532 32,966 51,394 74,132 7.1 5.6 24.9 20.1
Tech.
Executives 15,180 34,380 49,331 86,969 126,64 18.3 19.8 32.8 20.7
5
Clerical 18,840 25,152 33,028 46,552 60,683 8.4 14.6 18.7 14.2
workers
Sales workers 17,280 20,268 22,738 32,458 43,421 4.0 5.9 19.5 15.7
Services 14,112 18,720 20,591 29,545 43,521 5.5 4.8 19.8 21.4
workers
6,196 6,142 7,865 10,677 12,571 3.4 13.2 16.5 8.5
Agriculturists
Labourers 10,818 12,156 14,748 24,048 31,193 4.5 10.2 27.7 13.9
Inactive 9,851 10,547 12,242 16,546 22,315 3.2 7.7 16.3 16.1
Whole Kingdom 8,916 10,022 12,595 18,654 25,560 5.1 12.1 21.7 17.1
Note: /a Suganya and Somchai (1988)
/b For 1981 and 1988 this covers only BKK city core, while
the 1988 and 1990 figures are for total BKK
/c Bkk fringe refers to Pathum Thani, Nonthaburi, and Samut
Prakan
/d Compound annual rate
/e Author's own calculation
Table 3.4: Incidence of Poverty: Series I
1962/63 1968/69 1968/69 1975/76 1981 1981
Unadj./1 Adj./2 Unadj. Adj./3
North 65 36 38 35 23
Urban 56 19 33 31 23
Rural 66 37 39 36 23
Northeast 74 65 68 46 36
Urban 44 24 46 38 36
Rural 77 67 71 48 36
Centre 40 16 18 16 16
Urban 40 14 23 20 24
Rural 40 16 16 15 14
South 44 38 40 33 21
Urban 35 24 32 29 18
Rural 44 38 40 33 22
Bangkok 28 11 11 12 4
Whole Kingdom 57 39 42 33 24 31.3
Urban 38 16 25 22 16 21.1
Rural 61 43 45 37 27 34.7
Source: Medhi (1986), Table 12; and Medhi (1989), Table 1.
Note: /1 Sanitary districts were included in rural areas and
rural poverty line of 1981 baht per person per year is used to
identify the poor in these areas. This practice of course
understated the poverty incidence compared to the situation
where sanitary districts were included in the urban areas, as
shown in the figures for 1962/63, 1975/76 and 1981, where the
poverty line used was 2,961 baht per person per year.
/2 The adjusted poverty incidence presented here is
calculated by assuming that the proportions of the poor in
municipal areas versus sanitary districts versus villages were
the same in 1968/69 as in 1975/76, so that appropriate
proportions in 1975/76, which were known, could be applied to
the incomplete data for 1968/69. For example, it was found
that if sanitary districts were included in rural areas in
1975/76, the poverty incidence in urban areas in the Northeast
would be increased of adjusted upward by about 90 per cent and
in rural areas by about 6.7 per cent, and so on for other
areas in other regions. The already adjusted statistics are
therefore comparable with other data series presented.
/3 Adjusted for change in definition of household
between 1975/76 and 1981. Only the Whole Kingdom figures are
adjusted here.
Table 3.5: Poverty Lines and Poverty Incidence in Thailand, Series II
to IV.
Series II Series III Series IV/4
Region and 1975/6 1981 1986 1988/1 1988/2 1990 1992 1988 1990 1992
Area
North 33.2 21.5 25.5 20.0 22.3 16.7 13.7 49.9 40.3 39.2
Municipality 17.8 8.0 6.9 10.5 10.5 10.5 3.6
Sanitary 19.2 16.2 20.2 15.1 36.4 24.1 17.6 48.8 41.3 29.7
district
Village 36.4 23.3 27.7 21.6 21.6 16.4 14.2 50.1 40.0 41.4
Northeast 44.9 35.9 48.2 34.6 36.3 28.4 22.7 67.1 62.0 55.0
Municipality 20.9 18.0 18.7 18.6 18.6 17.7 9.9
Sanitary 24.7 20.8 33.3 18.6 41.8 36.9 31.8 53.3 53.1 45.1
district
Village 48.5 37.9 50.5 36.8 36.8 28.3 22.5 69.0 63.3 56.2
Centre 13.0 13.6 15.6 12.9 14.8 13.1 6.0 40.7 34.0 23.2
Municipality 11.5 11.7 8.9 7.7 7.7 6.6 0.9
Sanitary 8.0 11.6 11.4 5.9 18.7 19.4 9.2 41.2 35.7 19.7
district
Village 14.3 14.2 17.4 15.0 15.0 12.2 6.1 40.5 45.3 24.3
South 30.7 20.4 27.2 19.4 20.5 17.7 12.1 48.7 42.5 31.9
Municipality 21.7 15.2 8.6 10.8 10.8 9.6 5.9
Sanitary 18.1 15.2 8.1 10.2 25.7 29.0 15.1 34.9 39.1 24.2
district
Village 33.8 22.2 31.2 21.7 21.7 17.9 12.7 52.2 55.5 33.5
Bangkok 7.8 3.9 3.5 3.5 4.1 2.3 1.22 14.7 8.3 5.0
City core 6.9 3.7 3.1 2.7 2.7 2.1 1.1 14.2 9.5 4.5
Surrounding - - - 6.6 9.6 2.7 1.7 18.8 4.2 6.4
provinces
Whole Kingdom 30.0 23.0 29.5 21.2 22.8 18.6 13.7 48.8 43.2 36.5
Municipality 12.5 7.5 5.9 6.1 6.1 5.4 2.5
Sanitary 14.8 13.5 18.6 12.2 29.6 25.8 17.2 31.2 27.8 18.8
district
Village 36.2 27.3 35.8 26.3 26.3 20.7 15.7 55.7 49.3 42.4
Poverty Lines
/3
Urban 2,916 5,151 5,834 6,203 6,203 6,996 7,632 10,382 11,700 12,764
Rural 1,981 3,454 3,823 4,076 4,076 4,404 4,968 6,868 7,416 8,366
Source: NSO's 1988 SES; and Suganya and Somchai (1988) for 1981 and
1975/76 data
Note: /1 Applying rural poverty line to sanitary districts.
/2 Applying urban poverty line to sanitary districts.
/3 Baht per person per year.
/4 The data for municipal areas and sanitary districts are
combined to represent
urban areas, whereas data for villages are used to
represent rural areas.
Table 4.1: Distribution of
the Poor by some
Characteristics (per cent)
Characteristics 1981(1) 1988(1) 1988(2) 1990 1992
OCCUPATION OF HEAD
Professional & Technician 0.10 0.13 0.14 0.10 0.20
Executives 1.01 0.00 0.00 0.10 0.0
Clerical Workers 0.09 0.24 0.23 0.20 0.0
Sales Workers 2.07 1.79 2.07 1.50 1.30
Services Workers 0.80 0.37 0.47 1.00 0.80
Agriculturists 80.44 75.39 74.12 71.80 75.60
Labourers 7.45 11.03 11.64 7.10 5.00
Inactive 8.04 11.05 11.34 18.30 16.90
COMMUNITY TYPE
Municipal Area 4.86 5.42 5.03 5.90 3.80
Sanitary Districts 5.62 5.38 12.16 13.10 12.00
Village 89.53 89.20 82.81 81.00 84.20
SEX OF HEAD
Male 88.00 84.63 84.31 81.70 81.60
Female 12.00 15.37 15.69 18.30 18.40
AGE OF HEAD
Less than 20 0.30 0.17 0.17 0.10 0.80
20-29 11.06 9.54 9.46 10.00 9.50
30-39 28.32 29.34 29.06 28.10 25.80
40-49 31.64 26.40 26.40 22.10 22.70
50-59 16.13 14.85 15.19 17.90 17.20
60 and over 12.55 19.68 19.72 21.80 24.00
EDUCATION OF HEAD
No formal Education 18.97 14.35 14.64 17.10 16.20
Elementary 79.82 83.05 82.56 79.50 81.50
Secondary 0.97 1.52 1.78 2.90 2.10
Vocational & Technical 0.05 0.60 0.59 0.40 0.20
University 0.00 0.01 0.01 0.10 0.0
Higher Than Bachelor 0.00 0.00 0.00 0.00 -
Unknown Education 0.20 0.46 0.43 0.10 -
Source: NSO's 1988 SES and Suganya and Somchai (1988), Medhi et al.
(1994), and Author's own calculation using the 1990 SES Tapes.
Note: In 1988(1), sanitary districts are treated as rural areas,
whereas in 1988(2) sanitary districts are treated as urban areas, the
same as in 1990.
Table 4.2(a):
Poverty
Incidence,
Income
Shortfalls and
Poverty Gap,
1988 to 1992.
Series III (Old)
1988 1990 1992
Region Poverty Income Poverty Poverty Income Poverty Poverty Income Poverty
Inciden Gap Gap Inciden Gap Gap Inciden Gap Gap
ce ce ce
North 22.3 16.7 13.7
Urban 24.9 31.7 7.7 18.2 39.4 7.2 11.4 27.7 0.3
Rural 21.6 30.8 6.9 16.4 31.3 5.1 14.2 26.6 0.4
Northeast 36.3 28.4 22.7
Urban 33.0 30.1 10.4 29.8 50.4 15.0 23.9 29.9 0.7
Rural 36.1 31.5 10.9 28.3 33.1 9.4 22.5 24.4 0.5
Centre 14.8 13.1 6.0
Urban 14.1 30.8 3.8 15.7 47.2 7.4 5.8 28.9 0.2
Rural 15.0 26.9 4.6 12.2 37.1 4.5 6.1 23.7 0.1
South 20.5 17.7 12.1
Urban 15.9 28.7 4.5 16.5 38.7 6.4 9.1 33.6 0.3
Rural 21.7 28.1 6.2 17.9 34.9 6.3 12.7 30.9 0.4
Bangkok 4.1 2.3 1.2
Urban 4.0 11.6 1.2 2.1 49.3 1.3 1.1 44.8 0.0
Rural 5.2 29.6 0.6 2.7 50.7 1.1 1.9 53.1 0.1
Whole 22.8 18.6 13.7
Kingdom
Urban 13.9 30.2 4.2 12.3 45.4 5.6 7.6 31.0 0.2
Rural 26.3 29.9 8.0 20.7 33.4 6.9 15.7 25.6 0.4
Table 4.2(b):
Poverty
Incidence,
Income
Shortfalls and
Poverty Gap,
1988 to 1992.
Series IV (New)
1988 1990 1992
Region Poverty Income Poverty Poverty Income Poverty Poverty Income Poverty
Inciden Gap Gap Inciden Gap Gap Inciden Gap Gap
ce ce ce
North 49.9 40.3 39.2
Urban 48.8 37.0 19.8 41.3 56.1 11.1 29.7 33.1 3.7
Rural 50.1 40.6 18.6 40.0 49.1 9.1 41.4 31.7 2.9
Northeast 67.1 62.0 55.0
Urban 53.3 42.1 23.8 53.1 70.5 16.8 45.1 39.8 6.7
Rural 69.0 44.7 29.0 63.3 57.0 16.5 56.2 34.3 5.7
Centre 40.7 34.0 23.2
Urban 41.2 34.7 13.8 35.7 58.4 8.0 19.7 30.4 2.4
Rural 40.5 33.4 15.3 45.3 47.3 7.2 24.3 27.0 1.9
South 48.7 42.5 31.9
Urban 34.9 36.4 13.0 39.1 52.1 6.8 24.2 34.9 2.4
Rural 52.2 37.2 19.0 55.5 51.6 9.8 33.5 34.3 3.4
Bangkok 14.7 8.3 5.0
Urban 14.2 28.4 4.2 9.5 44.3 1.8 4.8 31.7 0.6
Rural 18.8 29.4 5.3 4.2 49.8 2.7 6.1 29.7 0.8
Whole 48.8 43.2 36.5
Kingdom
Urban 31.2 39.2 11.7 27.8 57.7 6.7 18.8 34.9 2.3
Rural 55.7 37.4 21.8 49.3 53.3 11.6 42.3 32.9 3.8
Source: Medhi et al. (1992), and Author's own computation.
Table 4.3: Income Share by Quintile Groups, 1962/63 to 1992.
Series A Series B
Quintile 1962/63 1968/69 1971/73 1975/7 1981 1986 1988 1990 1992
6
Quintile 1 2.9 3.4 2.4 6.1 5.4 4.6 4.5 4.1 3.8
Quintile 2 6.2 6.1 5.1 9.7 9.1 7.9 8.1 7.4 6.9
Quintile 3 10.5 10.4 9.7 14.0 13.4 12.1 12.3 11.6 10.9
Quintile 4 20.9 19.2 18.4 21.0 20.6 19.9 20.3 19.7 19.1
Quintile 5 59.5 60.9 64.4 49.3 51.5 55.6 54.9 57.3 59.4
Gini 0.563 0.555 0.605 0.426 0.453 0.500 0.479 0.504 0.543
Coefficient