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Abstract
Thailand has experienced economic growth well above world averages for about 40
years. It is a challenge to understand the sources of this high growth path, and in
particular why growth has not slowed down with assumed decreasing returns to capital.
We develop an intertemporal general equilibrium model separating between agriculture
and industry, and with open capital market and endogenous productivity growth to
analyze the underlying adjustment mechanisms. Foreign technology spillover embodied
in trade is assumed to be the driving force of the productivity growth, consistent with
econometric evidence. The high growth experience is understood as a transition path with
interaction between productivity growth, openness and capital investment. Counterfactual
analysis shows how protection may have had serious detrimental effect on growth rate
due to productivity and investment slowdown. The role of relative prices in constraining
growth is investigated, inspired by the Acemoglu-Ventura hypothesis of growth
slowdown due to terms of trade effect. In our setting, low elasticity between domestic and
exports goods in supply leads to large relative price shifts for domestic goods, but
promotes investment and growth during transition.