The Open Economy and the Environment

The Open Economy and the Environment

Development, Trade and Resources in Asia

Ian Coxhead and Sisira Jayasuriya

The Open Economy and the Environment asks what globalization means for environmental quality and the use of natural resources in developing economies. The authors develop theoretical models that trace the effects of trade and trade liberalization on sectoral resource allocation, factor returns, income and welfare, as well as incentives to clear forest and degrade agricultural land. The models reflect important developing economy features including spatial distinctions between uplands and lowlands, open-access forest resources and the special features of domestic food markets. The authors also analyze representative economy submodels, explore empirical cases based on applied general equilibrium models of Asian economies, and examine welfare and environmental implications of migration, trade liberalization and development policy.

Chapter 8: Environmental Effects of Investment and Trade Policy Reform During Thailand’s Economic ‘Miracle’

Ian Coxhead and Sisira Jayasuriya

Subjects: development studies, development economics, economics and finance, development economics, environmental economics, environment, environmental economics

Extract

8. Environmental effects of investment and trade policy reform during Thailand’s economic ‘miracle’ 8.1 THAILAND’S ECONOMIC BOOM AND AGRICULTURAL BUST In the middle and late 1980s, a remarkable combination of domestic and international factors came together to ‘make a miracle’ in Thailand: an acceleration of real economic growth from about 6 per cent per year in 1976–85 to above 8 per cent in 1986–95. At its peak in 1988–90, growth averaged 12 per cent per year. This growth was associated with policy and institutional changes that led to a major surge in both domestic and foreign investment. Low wages, reductions in trade barriers and conservative economic management resulting in low inflation and a stable exchange rate made the Thai economy an ideal host for foreign investment. From late in the 1980s, financial liberalization (the opening of capital markets) encouraged further foreign direct investment (FDI) as well as foreign borrowing, thus adding further fuel to the ongoing investment boom. From 1980 Thailand, along with Malaysia and subsequently China, pulled clear of the other ‘second-generation’ Asian industrializing countries in terms of gross fixed capital formation and FDI (Table 3.2). Political instability notwithstanding, and despite doubts about the robustness of its financial institutions, Thailand had become a model developing economy, winning a place in the group of eight ‘high-performing Asian economies’ that the World Bank in 1993 dubbed the East Asian Miracle. The gains from the boom were not uniformly shared among sectors. Agriculture, historically the mainstay of...

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