Growing into Trouble: Institutions and Politics in the Thai Sugar Industry

Abstract

Why do some economies grow for several years and then stall? One obvious answer is that these economies have “overheated.” Another is that foreign demand for their products has dried up. This article explores a longer-term explanation—namely, that the institutions favorable for one stage of economic growth are less suitable for a subsequent stage. This idea of “growing into trouble” is consistent with Dani Rodrik's argument that the institutions required to stimulate growth may not be sufficient to sustain growth. We push this idea further by exploring the different requirements of structural change versus upgrading. Structural change connotes an economy's diversification through new investments, often producing real income growth. But economies can diversify without being more efficient, or their initial competitiveness can be based largely on transient factor endowment advantages. Upgrading refers to the competitiveness of these diverse activities achieved through locally based productivity improvements.