Relationship of Growth, Capital Inflow and Saving in Thailand for a Period 1993-2007

Abstract

Growth of Thailand gross domestic product (GDP) cannot be achieved rapidly by using only local resources, because the country suffers from a shortage of capital and modern technology (Peter, 2004). One of the ways to foster GDP of Thailand is to welcome FCI. This paper examines the relationship of FCI and domestic savings on the long run economic growth in Thailand based on quarterly time series data for the period of 1993-2007. The relationship of the model was estimated using Ordinary Least Square (OLS). The relationship also was estimated for Error Correction Mechanism (ECM). The purpose of ECM is to investigate the shot-term equilibrium relationship between the integrated variables in the growth relationship. The findings fully support the applicability of economic growth models. Both capitals give positive effect to economic growth, the effect from domestic capital, saving, is greater than foreign capital inflow. ECM results suggesting that growth adjust to the change in saving, financial capital inflow and labour availability in the long run. The relationships also suggest that, in the short run of changes in saving, financial capital inflows and labour ratio to population have a positive effect on short run changes in growth.