Luận án Tiến sĩ Thanapat Reungsri: Đầu tư hạ tầng công & tăng trưởng kinh tế Thái Lan

THE IMPACT OF PUBLIC INFRASTRUCTURE INVESTMENT ON ECONOMIC GROWTH IN THAILAND Thanapat Reungsri Bachelor of Arts in Economics (Thammasat University, Thailand) Master of Management in International Business (Monash University, Australia) Thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy School of Economics and Finance Faculty of Business and Law Victoria University Australia January 2010 Abstract Infrastructure traditionally holds centre place in nations‟ economic planning. New infrastructure promotes economic growth, expands trade, reduces poverty and improves the environment. Its importance worldwide invites significant informed debate over the effects of public infrastructure investment on economic development. In economic downturns, the weighting of infrastructure investment in national budgets makes it a frequent contender for substantial cuts.

During the Asian economic crisis in 1997, many infrastructure projects in Thailand were suspended or terminated. The inability to maintain an appropriate level of expenditure led to substandard transport and utilities for the country, impeding its growth. Because of the crisis, a fiscal sustainability framework was established by the Thai government to ensure adequate levels of revenue and investment expenditure within a balanced budget. This study investigates the effects of public infrastructure investment on economic growth under Thailand‟s fiscal sustainability framework.

A recursive supply-side model based on the Standard Neoclassical Model framework is used using Thai national data on public revenue (taxes, non-tax revenue and debt) to estimate infrastructure investment. An aggregate production function is used based on quarterly time series data from 1993 to 2006. This period comprises economic circumstances in Thailand including recession and recovery. Variables were subjected to unit root test to justify stationary status.

If all variables were stationary, the Ordinary Least Square (OLS) method was used in estimation. If all variables were non-stationary and of an order I(1), then the cointegration test was conducted for long- run equilibrium. If the variables confirm cointegration, then the Error Correction Model was estimated using OLS, as the error correction term is constructed to estimate for coefficients. If the variables were found to have a mix of stationary and non-stationary variables, then the Autoregressive Distributed Lag model was used in the estimation.

Finally, a simulation process was conducted, based on the estimated model, termed Infrastructure Finance Model for Emerging Economies. Simulation was carried out with ex-ante and ex-post scenarios: to generate a time-path within the data time period to prove model consistency; and for time- path values beyond the time period to provide prediction for policy decisions. The simulation consists of five scenarios: maximum borrowing or 20 per cent of budget; 15 per cent of budget; 10 per cent of budget; 5 per cent of budget; and no borrowing, or no effect on budget. i The results indicate that public infrastructure investment has a mixed effect on domestic growth.

A positive result is found in lagged public investment as a proportion of GDP at the third quarter, confirming that infrastructure capital has a positive significant effect on economic growth. However, a negative impact is found in lagged real government investment at the second quarter. As public investment increases, the demand for resources also increases and, given full capacity for the economy, this may lead to increased costs of private investment, resulting in a fall in private investment and thus reduce economic growth (crowding-out effect). Hence, under conditions of full capacity, an increase in public investment could result in negative impact on growth.

The Infrastructure Finance model is therefore a useful indicator of private sector intentions for resource expenditure. ii Declaration “I, Thanapat Reungsri, declare that the PhD thesis entitled The Impact of Public Infrastructure Investment on Economic Growth in Thailand is no more than 100,000 words in length including quotes and exclusive of tables, figures, appendices, bibliography, references and footnotes. This thesis contains no material that has been submitted previously, in whole or in part, for the award of any other academic degree or diploma. Except where otherwise indicated, this thesis is my own work”.

Signature Date iii Acknowledgements My sincere gratitude is extended to those who contributed to the fulfilment of this study. Deep appreciation is offered to Dr Kandiah Jegasothy, my principal supervisor from the School of Applied Economics, Victoria University, for his generous guidance and encouragement throughout. As well as academic assistance, Dr Jegasothy assisted me in gaining a new perspective on life overcoming difficulties that arose during the years of studying. My appreciation is also extended to Dr Segu Zuhair, my co-supervisor from the School of Applied Economics, Victoria University, for his constructive comments and suggestions in writing this thesis.

The financial support extended by the Thai Bureau of the Budget was the foundation for this undertaking and I thank them sincerely for the opportunity to contribute this thesis for the benefit of my country. I owe a great debt to my father, parents-in-law, sister, brother, colleagues and friends for their understanding and encouragement during a difficult time. The honour of this success is dedicated to my mother, who passed away in a car accident in October 2007. She gave me the confidence to pursue my dream so that I could set out to make this doctoral degree a reality.

Of great importance is the person who made this honour possible; my wife Patama Suchikul Reungsri has always stood by my side, supporting and encouraging me. I also thank my daughter, Napaskul Suchikul Reungsri (Melbourne) for being my inspiration and making me laugh during hardship. iv Dedication Dedicated to the three ladies of my life Mother, Sutusanee Reungsri Wife, Patama Suchikul Reungsri Daughter, Napaskul Suchikul Reungsri v Table of Contents Abstract. v List of Abbreviations.

ix List of Tables. xi Chapter 1 Introduction to Study .2 Statement of Purpose .4 Research Scope and Significance. 10 Chapter 2 Context of the Research .1 Economic Growth Theory .2 Determinants of Economic Growth.5 Studies on Development.2 Studies on Financing. 35 Chapter 3 Methodology Review .2 Single Equation Models .1 Full Market Models .2 Partial Market Models.

60 Chapter 4 Study Context: Thailand .1 National Economic and Social Development Plans .10 Summary of Plans and Infrastructure Investment .3 Sources of Infrastructure Finance. 106 Chapter 5: Methodology and Analytic Model .2 Defined Revenue Streams .3 Direct Tax Equations .4 Indirect Tax Equations .5 Raw Data and Sources of Data .1 Stationary and Non-stationary.2 Testing for Unit Roots .3 Error Correction Model .5 Autoregressive Distributed Lag. 141 Chapter 6: Model Estimation and Simulation .1 Public Revenue Estimation .3 Estimation Petroleum Tax .4 Estimation Indirect Taxes.5 Estimation Foreign Borrowing .6 Estimation Debt Management .2 Public Infrastructure: Factor of Production .3 Model Estimation Results .4 Aggregate Production Function .5 Infrastructure Finance Model for Emerging Economies .1 Ex ante Scenario Simulation .2 Ex post Simulation. 184 Chapter 7 Policy Discussions, Recommendations and Conclusions.6 Recommendations for Further Research.

196 viii List of Abbreviations ADF Augmented Dickey-Fuller AEC Asian Economic Crisis ARDL Autoregressive Distributed Lag BIBF Bangkok International Bank Facility BOB Bureau of the Budget BOT Bank of Thailand C-D Cobb-Douglas CGE Computable General Equilibrium CIT Corporate Income Tax CPI Consumer Price Index CRTS Constant Returns to Scale DB Domestic Borrowing DF Dickey-Fuller DW Durbin-Watson ECM Error Correction Model ETR Effective Tax Rate FB Foreign Borrowing FPO Fiscal Policy Office FTA Free Trade Agreement FY Fiscal Year1 GDP Gross Domestic Product GNP Gross National Product HD Harrod-Domar ICOR Incremental Capital Output Ratio IFMEE Infrastructure Finance Model for Emerging Economies IMD Institute for Management Development IMF International Monetary Fund IMGPI Import Goods Price Index IPPI Private Investment Price Index JJ Johansen and Juselius LM Lagrange Multiplier L-R Long-Run MOF Ministry of Finance NBER National Bureau of Economic Research NEDB National Economic Development Board NESDB National Economic and Social Development Board 1 Fiscal Year in Thailand starts from October to September ix Abbreviations (cont.) NIEs Newly Industrialising Economies OECD Organisation for Economic Co-operation and Development OLS Ordinary Least Squares PDMO Public Debt Management Office PIT Personal Income Tax PPP Public-Private Partnership PT Petroleum Income Tax R&D Research and Development RI Retained Income RTG Royal Thai Government SALs Structural Adjustment Loans SBT Specific Business Tax SEC Stock Exchange Commission SNM Standard Neoclassical Model SOEs State Own Enterprises S-R Short-Run TFP Total Factor Productivity THB Thai Baht TL Transcendental Logarithmic UNESCO United Nations Educational Scientific and Cultural Organization VAR Vector Autoregression VAT Value Added Tax x List of Tables Page 1.1 Fiscal sustainability framework 4 1.2 Retained Income from Non-financial SOEs and GDP, 1993-2006 5 4.1 First Plan GDP 1961-1966 61 4.2 Second Plan GDP 1967-1971 65 4.3 Third Plan GDP 1972-1976 66 4.4 Fourth Plan GDP 1977-1981 67 4.5 Fifth Plan GDP 1982-1986 68 4.6 Sixth Plan GDP 1987-1991 70 4.7 Seventh Plan GDP 1992-1996 71 4.8 Critical Infrastructure Response Plan 1990-2001 72 4.9 Eighth Plan GDP 1997-2001 73 4.10 Ninth Plan GDP2002-2006 75 4.11 Summary of GDP During the Nine Plans 1962-2006 75 4.12 Summary of Nine Plans Infrastructure Program 1962-2006 76 4.13 Selected Countries Ranked for Competitiveness, 2000-2004 79 4.14 World Infrastructure Stocks, per Capita Income, 2000 79 4.15 Public Revenue Sources 1993-2006 83 4.16 Direct and Indirect Tax Trends, 1993-2006 85 4.17 Direct Tax Revenue Components, 1993-2006 86 4.18 Personal Income Tax Rates, 2006 87 4.19 Personal Income Tax Components, 1993-2006 87 4.20 Withholding Tax Rates, 2006 88 4.21 Personal Income Tax: Deductions and Allowances 2006 90 4.22 Corporate Income Tax, 2006 91 4.23 Corporate Income Tax 1993-2006 92 4.24 Withholding CIT Tax Rates, 2006 93 4.26 Specific Business Tax 2006 97 4.27 Excise Tax Components, 1993-2006 98 4.28 Non-tax Revenue & Retained Income Components, 1993-2006 99 xi 4.30 Capital Expenditure Proportionate to Budget Expenditure 1993-2006 103 4.31 Holders of Government Domestic Debt 1993-2006 105 4.32 Net External Debt to Total Public Debt 1993-2006 106 5.1 Budget Expenditure Categories 1998-2006 112 5.2 Categories of Domestic Public Debt 2002-2006 114 5.3 State Owned Enterprises: Retained Income & Capital Expenditure 1993-2006 115 5.4 Rebate Trends for VAT and PIT/CIT 1993 to 2006 117 5.5 Sources of Data 130 5.1 Withholding PIT/GDP Variables: Unit Root Test Results 144 6.2 PIT on Interest: Unit Root Test Results 146 6.3 Other PIT: Unit Root Test Results 148 6.4 Annual CIT: Unit Root Test Results 151 6.5 CIT Service Sector and Repatriated Foreign Profits: Unit Root Test Results 153 6.6 Withholding CIT: Unit Root Test Results 155 6.7 Other CIT: Unit Root Test Results 157 6.8 Petroleum Tax: Unit Root Test Results 159 6.9 Domestic VAT: Unit Root Test Results 161 6.10 Import VAT: Unit Root Test Results 163 6.11 SBT: Unit Root Test Results 165 6.12 SBT: Long Run Variable Relationships 166 6.13 Public Infrastructure: Unit Root Test Results 169 xii List of Figures Page 2.1 Transition Mechanism of Public Investment 21 3.1 Structure of Reviewed Approaches 38 4.1 North and Central Thailand: Water Infrastructure, 2006 64 4.2 Public Expenditure to GDP, 1976-2006 77 4.3 Sources of Infrastructure Investment 2006-2011 81 4.4 Withholding Tax: Monthly Patterns FY2005–2006 88 4.5 Personal Income Tax (Interest): Monthly Patterns FY2005–2006 89 4.6 CIT on Repatriated Profits Out: Monthly Patterns FY2005–2006 93 4.7 Customs Department Revenue, 1993 – 2006 96 4.8 Non-tax Revenue and Retained Income as Percentages of GDP, 1993-2006 100 4.9 Debt Servicing as a Percentage of Annual Budget 1996-2006 101 4.10 Domestic and External Debt 1997-2006 104 5.1 Public Revenue Sources for Infrastructure Investment 110 5.2 Budget Expenditure Categories 1998-2006 113 6.1 Real GDP Growth, Estimated and Actual:1994 - Q3 to 2006-Q2 174 6.2 Real GDP Estimated and Actual: 1994-Q2 to 2006-Q2 175 6.3 Ex ante Scenario Simulation: Real GDP 176 6.4 Infrastructure Finance Model for Emerging Economies 178 Appendixes Appendix A: Plot of Variables A1 Appendix B: Table F A24 Appendix C: Unit Root Tests A25 Appendix D: Cointegration Tests A56 Appendix E: OLS Results A69 Appendix F: Diagnostic Tests A72 Appendix G: Long Run Cointegration Test A73 xiii Chapter 1 Introduction to Study Infrastructure is a profound determinant of nationhood, a measure of a country‟s success on the world stage.