Thailand is a good example of a developing country that, with rapid economic growth, has graduated from the ranks of undeveloped countries in just a generation or two. It was a low-income country in the 1980s, but the World Bank upgraded it to "upper-middle-income" status in 2011. It grew by a breakneck 8% to 9% during the late 1980s and early 1990s, before it got caught up in the Asian Financial Crisis of 1997-98.

The economy recovered from that crisis in the following years, only to be hit by the global financial crisis of 2007-08. Since then, it has again slowed due to economic, natural and political events. In recent years it has grown at about the same rate as larger, more developed economies—meaning well below 5%.

In 2016, the military government announced what it’s calling “Thailand 4.0,” policies that aim to transform the economy by attracting investment in hi-tech manufacturing and services. (Thailand 1.0 through Thailand 3.0 represent the evolution from agricultural dominance to the development of heavy industry and energy.) The goal is to make Thailand a high-income nation, to reduce inequality, and promote environmentally sustainable growth.

Key Takeaways

  • Thailand, Southeast Asia's second-largest economy, has grown in the past generation or two from an undeveloped country to what the World Bank calls a "middle-income" country.
  • Its three main economic sectors are agriculture, manufacturing, and services.
  • Thailand is noted for its economic volatility, partly a consequence of political instability dating to the 1930s.

Reasons for Volatility

The Thai economy has been roiled over the years by several factors, some beyond its borders and others within. Domestically, the country has a long history of political instability marked by military revolts against the civilian government. Thailand has endured a dozen coups and coup attempts since 1932, the most recent in 2014, when the current military junta was installed. Political instability is generally not good for business.

Environmental disasters have also taken a toll. As a low-lying coastal country, Thailand has suffered several catastrophic floods. One of the worst in decades struck in 2011, generating economic loss of approximately $46 billion.

Like many developing countries, Thailand has been the victim of its own asset bubbles, particularly in real estate. One of the worst occurred in the late 1990s, when excessive property lending and overbuilding made the whole economy vulnerable to a downturn. When Thailand’s central bank was forced to devalue the baht in 1997, property prices plunged and the whole economy went into a severe recession. The devaluation set off the Asian Financial Crisis that roiled world economies in 1997–98. By 2019, property prices were again reaching levels that stoked fears of a crash.

And of course, market and economic conditions elsewhere in the world impact Thailand. They include the effects of the 2000 dotcom bust, the downturn that followed the September 11 attacks, and the world financial crisis of 2007-08. Gross domestic product (GDP) bounced back by 2010, growing by 7.5%, but has been erratic since, falling to lower than 1% growth in some years. It grew by 4.1% in 2018, to $505 billion, according to the World Bank.

Thailand is the second-largest of the 10 ASEAN (for Association of South East Asian Nations) countries, a trading bloc formed in 1967. Its economy has three key sectors: agriculture, industry, and the service sector.

Agriculture

Agricultural development has played a major role in the transformation of Thailand’s economy. It has evolved in two phases, the first from the 1960s to the 1980s and driven by utilization of unused labor and land. Agriculture was the economy’s main driver during this period, employing about 70% of the working population.

During the second phase, while labor shifted to urban areas and no new land was utilized, there was nevertheless an increase in agricultural productivity, thanks to mechanization and availability of formal credit.

Agriculture’s share of output has fallen sharply over the years, to about 6.5% in 2018 from around 24% in 1980, though it still employs about 31% of the working population.

That compares with 2% or less for the world’s most advanced economies, though is comparable to other Southeast Asian countries. Thailand’s main agricultural output is rice, rubber, corn, sugarcane, coconuts, palm oil, pineapple, cassava (manioc, tapioca) and fish products.

Industry

The industrial sector—of which manufacturing is the biggest segment, along with mining, construction, electricity, water, and gas—generates about 35% of GDP and employs about 24% of the labor force.

The growth of manufacturing occurred over two periods under two strategies. The first, from 1960 to 1985, was governed by policies related to import substitution, a tactic common among developing countries.

The second, from 1986 to the present, focuses on exports. In the initial years, manufacturing in Thailand was highly intertwined with agriculture, especially as the country’s manufacturing started with the food-processing industry. Slowly, with changes in industrial policy, industries such as petrochemicals, electronics, automobile and automobile parts, computer equipment, iron and steel, minerals and integrated circuits got a boost and investment incentives.

Service Sector

The service sector accounts for about 56% of GDP and employs about 46% of the labor force. Within services, transportation, wholesale and retail trade (which includes repair of motor vehicles and motorcycles as well as personal and household goods), and tourism and travel-related activities have been prominent contributors to GDP and generators of employment.

The Importance of Exports

Thailand is becoming ever more reliant on exports, which accounted for 67% of GDP in 2018, up from 16% in 1960. This is one source of its economic volatility. The more Thailand relies on foreign markets, the more it is tied to the economies of its trading partners, making it vulnerable to recessions in those economies and to currency fluctuations.

Thailand’s major export destinations are China, Japan, the U.S., Indonesia, Malaysia, Australia, Hong Kong, Singapore, and India. Thailand’s main exports are manufactured goods, principally electronics, vehicles, machinery, and food.

The Bottom Line

Thailand’s economy is a blend of a strong agricultural sector with a developed manufacturing sector and a stable service sector. Although the agricultural sector has given way to others, it still employs a large part of the labor force and still bolsters exports, the engine of the country’s economy.