Abstract
Thailand’s manufacturing sector is characterised by considerable resource misallocation compared with this sector in other countries, and the problem may extend to its agricultural sector as well. Using detailed household-level data on rice production from the 2013 Agricultural Census, this paper examines resource misallocation across farms in Thailand and its effect on the country’s aggregate productivity in rice farming. I find that the marginal products of land and capital were largely dispersed, which is an indication of significant resource misallocation. I further estimate that reallocation of resources could increase aggregate output and productivity by approximately a factor of 1.67. This potential gain is not small, but it is smaller than that predicted in other studies for the Thai manufacturing sector and the Malawian agricultural sector, a result suggesting that the Thai rice farming sector is relatively less plagued by resource misallocation. Other developing countries may encounter similar degrees of misallocation in their agricultural sectors. I also find that an effective reallocation policy cannot involve simply reducing the landholdings of large landholders but rather supports highproductivity farmers to have more land and capital.
Highlights
It is widely accepted that differences in income across countries are for the most part attributable to differences in productivity, and recent literature suggests that the misallocation of resources or factors of production plays an important role in this variation
This potential gain is not small, but it is smaller than that predicted in other studies for the Thai manufacturing sector and the Malawian agricultural sector, a result suggesting that the Thai rice farming sector is relatively less plagued by resource misallocation
I found that a reallocation of resources, in particular land and capital, could increase the aggregate output and the productivity of Thai rice farming by approximately 1.67-fold, or 67%
Summary
It is widely accepted that differences in income across countries are for the most part attributable to differences in productivity, and recent literature suggests that the misallocation of resources or factors of production plays an important role in this variation. Restuccia and Rogerson (2008) showed that resource misallocation can lower a country’s aggregate productivity by as much as 50%, and Hsieh and Klenow (2009) found high levels of resource misallocation in the Chinese and Indian manufacturing sectors and predicted that reallocation of resources could increase aggregate manufacturing productivity by 87-115% in China and 100-128% in India. (2013) found that the manufacturing sectors of Italy, Vietnam, Ukraine, and several other Latin American countries, again respectively, were characterised by higher levels of resource misallocation than was the case in the United States. In the specific case of Thailand, Dheera-aumpon (2014) and Paweenawat et al (2017) found that the manufacturing sector performed more poorly in terms of misallocation than in China, India, or the United States
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