Thailand must cultivate innovation to thrive

Foreign journalist Donald Low’s opinion piece for South China Morning Post reflects Thailand, which once a beacon of hope for Southeast Asia's economic growth, is now grappling with the challenges of the middle-income trap.

Despite being one of the first Southeast Asian nations to attain middle-income status in the early 1990s, Thailand has struggled to break free from the middle-income trap. Last year, its gross domestic product per capita was approximately $7,000—just over half of that of China and neighbouring Malaysia. The 1997-98 Asian financial crisis, which originated in Thailand, devastated the economy, destabilizing banks and undermining development prospects. It took nearly a decade for Thailand to recover its pre-crisis GDP per capita. Since then, growth has averaged slightly over 4 per cent annually, which is insufficient for a middle-income economy. Last month, the World Bank published its World Development Report 2024, titled “The Middle-Income Trap.” 

The report emphasizes the key challenge facing economies like Thailand's: while significant investments and technology transfer can help a country move from low to middle-income status, advancing to high-income status—defined as having a GDP per capita of at least $14,000—requires building domestic innovation capacity. Visitors to Bangkok are often surprised to discover this stagnation, as the city’s modern skyscrapers, luxury hotels, high-end shopping centers, and gourmet dining create an impression of a dynamic economy on the brink of high-income status within a decade. 

During a recent trip to Bangkok, journalist Donald Low noted the significant increase in luxury hotels and shopping malls compared to just five years ago. The impressive One Bangkok complex, for instance—developed by TCC Group in a previously neglected area—stands out architecturally. However, the utility of such mega-projects for development is questionable. While they enhance the city’s visual appeal for residents and tourists, they are unlikely to foster long-term growth or innovation in Thailand. 

Furthermore, they contribute to economic and spatial inequality, replacing older, more affordable neighborhoods with expensive developments. In developing nations, an abundance of luxury properties often indicates a misallocation of financial resources, with capital diverted into speculative ventures that may yield private profits but offer little benefit to overall development. The real estate sector typically fails to enhance a country's technological capacity or improve workforce skills and productivity. 

Moreover, significant investments in real estate often lead to increased corporate and household debt, resulting in asset bubbles. When these bubbles burst, the societal costs—such as reduced wealth, lower consumer spending, taxpayer-funded bailouts, and economic downturns—far outweigh any short-term benefits, as evidenced by China’s current challenges. Additionally, the tourism sector contributes minimally to technological advancement. Thailand's tourism industry is particularly large, accounting for around 11 per cent of GDP. 

However, a major factor in the country’s recent sluggish growth has been the slow recovery of Chinese tourist arrivals following the pandemic. Most jobs in tourism—whether in hotels, restaurants, or cultural activities—are generally less conducive to automation, which limits potential productivity improvements compared to other sectors. The scalability of tourism is also limited; increasing machinery use to serve more customers often leads to lower quality, which can ultimately decrease demand. 

An excess of real estate development diverts vital capital and resources—such as land and labour—away from more productive economic activities. While Thailand has a sizable and reasonably competitive manufacturing sector, accounting for about one-third of its economy, it remains largely dominated by multinational corporations. 

By Naila Huseynova