Donald Low

Asian Angle | Why Thailand failed to escape the middle-income trap

Despite early success, Thailand’s growth has stagnated – as flashy developments siphon resources away from innovation and productivity

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Donald Low

Published: 12:30pm, 20 Oct 2024

Despite being one of the first populous Southeast Asian countries to achieve middle-income status in the early 1990s, Thailand has struggled to escape the middle-income trap. Its gross domestic product per capita last year was about US$7,000 – just over half of China and neighbouring Malaysia.

The Asian financial crisis in 1997-98, which originated in Thailand, savaged the country’s economy, destabilised its banks and financial system, and set back its development prospects. It took Thailand nearly a decade to regain its pre-crisis level of GDP per capita. Since then, growth has averaged just over 4 per cent annually – too low for a middle income economy.

Last month, the World Bank released its World Development Report 2024 titled “The Middle-Income Trap”. The report highlights the central challenge for economies like Thailand’s: while high investments and technology diffusion can elevate a country from low- to middle-income status, advancing to high-income status – with a GDP per capita of at least US$14,000 – requires developing domestic innovation capacity.

Foreign visitors to Thailand’s capital, Bangkok, are often surprised to learn about this stagnation. The city’s gleaming skyscrapers, luxury hotels and condominiums, high-end shopping centres and fine dining options create the illusion of a vibrant, innovative economy well on its way to high-income status within a decade or so.

A view of Bangkok’s skyline. Gleaming skyscrapers and high-end condominiums do not always signify economic success. Photo: Donald Low

A real estate glut

During a recent visit to Bangkok, I was struck by the proliferation of new luxury hotels and shopping malls compared to just five years ago.