Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies

Abstract

During Thailand's economic development, the shares of output and employment in agriculture have been consistently higher than in other countries at the same level of income. There are push and pull factors for labor transformation. This paper demonstrates that the slow transformation from rural to urban economy is the result of the agricultural trap, which keeps agrarian labor inside the farm sector. In addition to the lack of public investment in human capital, extremely wasteful farm subsidies have weakened the natural process of structural transformation. Farm subsidies encourage land expansion, which usually lags behind commodity booms, resulting in the excess supply of farm products. In turn, when commodity prices collapse, excess supply perpetuates further subsidies and emboldens the pork barrel activities of incumbent governments.