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Global influences on urbanization trends

The two models represented by Equations 4-8 and 9-12 were estimated using three-year, thirteen-region panel data by three-stage least squares (3SLS). The results are summarized in tables 8.2 and 8.3 respectively.

The first column of table 8.2 shows that increases in a region's share of exports, local investments, and government spending increase the region's share of total urban population. By specifying the model in terms of shares, the results imply that the regional distribution of exports, local investments, and government spending tends to produce a more even distribution of urban population.

The regression coefficient for foreign direct investment shares on urban population shares suggests that the way foreign investment is distributed among the regions tends to produce more uneven distribution of urban population. What seems to be happening is that foreign investment tends to gravitate around one or two regions (consider the peaks in fig. 8.5) so that urban growth concentrates on these regions. The growth in these selected regions may be sufficiently strong that the share of the "average" region (which is what the regression captures) diminishes. If this interpretation of the results is correct, then one can say that direct foreign investment tends to promote urban primacy.

The estimated equation for foreign investment determination is shown in the second column of table 8.2. The results demonstrate that a region's share of total urban population positively determines its share of foreign investment.

In the same equation, local investment shares seem to have no statistically significant influence on foreign investment shares. This suggests that no apparent phenomenon of crowding-in or crowdingout occurs between local and foreign investment. The other two determinants of regional foreign investment shares, namely, electrical connections and telephone exchanges, are shown to have unexpectedly adverse effects on foreign investment shares. The results suggest that the greater the region's share in power and communications facilities, the lower the share of total foreign investment. A possible explanation for the results could be measurement problems: having electrical connections does not necessarily guarantee that power is available (a significant portion of firms have had to procure their own power generation facilities owing to frequent power out-age); and having telephone exchange facilities does not necessarily imply access to telephones.

Table 8.2 Three-stage least squares estimates of model 1 (Equations 4-8)

Values in parentheses are t-statistics.
* Significant at the 1 per cent level.

The estimated exports share equation presented in the third column of table 8.2 suggests that share of urban population does not have any statistically significant influence over export shares. This may suggest that, unlike direct foreign investment, exports continue to rely upon resource-based comparative advantage. The proxy variables for power and communications facilities are also shown to have adverse effects on regional shares of total exports.

The estimated local investment equation reported in the fourth column of table 8.2 shows that shares of urban population, foreign investment, and power and banking facilities do not have any statistically significant influence on the regional distribution of local investment.

Finally, the estimated equation for government spending suggests that the regional allocation of government resources is positively affected by urban shares but not by the regional social status represented by shares in infant deaths.

Table 8.3 presents the 3SLS estimates of Equations 9-13. As mentioned earlier, this system of equations was specified to test for the influence of lagged dependent variables on the basic model.

The estimated urbanization equation implies that whatever effect foreign and local investment as well as exports have on the regional distribution of the urban population is absorbed and outweighed by the influence of previous period urban population shares. Only government spending seems to have transcended such influence, indicating that public expenditure may be an important accelerator of changing urban patterns.

After introducing lagged dependent variables for the foreign investment, local investment, exports, and government spending equations, the regional distribution of urban population is now found to be a significant determinant. What seems to be happening is that the introduction of lagged dependent variables in effect isolated the effect of urbanization on the above-mentioned variables.

The results also suggest some indirect influence of direct foreign investment on urbanization via exports and local investment. The previous period foreign investment share is shown to have a positive influence over the current period export share of a region. This may be capturing the effects of increasing foreign participation in the promotion of non-traditional export commodities. On the other hand, as shown by the local investment shares equation, foreign investment seems to be crowding out local investment. These indirect effects could partly explain why foreign investment, exports, and local investment are shown to have no significant final influence on urbanization.

Table 8.3 Three-stage least squares estimates of model 2 (Equations 9-13)

Values in parentheses are t-statistics.
* Significant at the 1 per cent level.

Concluding remarks

Despite the data used in the regression analysis and other limitations underlying the model, a number of interesting results concerning global influences on recent urban trends are noteworthy.

First of all, results show that the distribution of direct foreign investment across regions contributes to the tendency of urbanization to be concentrated in one or two regions. On the other hand, exports, the other global factor tested here, are shown to be contributing to a more balanced pattern.

Local factors tested in the analysis were not shown to be contributing to urban primacy. The share of local investment and government spending in a region increases the region's share of total urban population.

The results also show that foreign investment tends to reinforce a region's exports share, especially in the area of non-traditional export commodities. However, there is some evidence that suggests that foreign and local investment may be crowding-out each other. This indirect effect may weaken the final effect of these factors on urbanization.

A region's share of total government spending tends to improve the level of urban development. In turn, the distribution of government spending is also highly sensitive to urban population shares, but unfortunately is insensitive to social needs (represented in the model by the regional share of total infant deaths).

On the whole, the above results suggest that global factors do not necessarily lead to urban primacy. The recent trend where the dominance of Metro Manila relative to other regions seems to be declining may in fact be influenced by some global factors, especially exports. But, despite the declining trend, the momentum generated by the size of the National Capital Region continues to influence the distribution of both global and local factors. Furthermore, it is unfortunate that government spending has served to reinforce this phenomenon. But, as shown above, a reallocation of public resources could potentially effect balanced regional development.

Acknowledgement

The author gratefully acknowledges the research assistance provided by Ma. Peregrina Makabenta.

References

Fuchs, Roland J. and E. M. Pernia (1989), "The Influence of Foreign Direct Investment on Spatial Concentration." In Frank J. Costa et al. (eds.), Urbanization in Asia, Spatial Dimensions and Policy Issues. Honolulu: University of Hawaii Press, pp. 387-410.

Herrin, A. N. and E. M. Pernia (1987), "Factors Influencing the Choice of Location: Local and Foreign Firms in the Philippines," Regional Studies 21(6): 531-541.

Lamberte, Mario B., Rosario G. Manasan, Gilberto M. Llanto, Winfred M. Villamil, Elizabeth S. Tan, Fernando C. Fajardo, and Maren Kramer (1990), Balanced Regional Development Study. A study commissioned by the Asian Development Bank. Makati: Philippine Institute for Development Studies, May.

Pernia, E. M., G. B. Reyes, and E. M. Soliman (1982). The Spatial and Urban Dimensions of Development in the Philippines. Manila: Philippine Institute for Development Studies.

The changing urban system in a fast-growing city and economy: The case of Bangkok and Thailand

Introduction
Growth and transformation of the Thai economy
Urban population, settlement patterns, and employment distribution
The international dimension of the changing urban system
The internal dimensions of the changing urban system
The urbanization of bangkok: its prominence, problems, and prospects
Conclusions: towards a new national urban development policy for Thailand
Acknowledgements
Notes
References

Medhi Krongkaew

Introduction

The major purposes of this chapter are twofold. First, it will describe the characteristics of the changes in the urban system associated with the rapid economic growth and development of Thailand during the 1980s in general, and the growth of Bangkok, its capital city, in particular. Secondly, it will discuss the effects of these changes upon the future development of Bangkok and the future directions of Thailand's urban development policy.

What makes the above topics interesting is the fact that, in a situation of high economic growth, the process of urbanization (defined as the increase in the proportion of the total population living in urban areas) could either further stimulate the growth of the economy or hinder future growth after a preliminary period of urban expansion. No doubt, the existing urban system in Thailand has helped contribute to the present high rate of economic growth because it provides the location and the ease with which the country could produce for the domestic market and for export, and encourages the expansion of personal and commercial service industries such as education, banking, transportation, and tourism. However, a most important question still is: If the country is to continue its fast growthpattern, what changes or adjustments are needed in the existing urban system, and to what degree?

Thailand provides an interesting and unique case in which a study can be made of the linkages between rapid economic growth and the process of urbanization. On the one hand, the two-digit growth rates in the last three years of the 1980s might be considered very high, but not out of ordinary because similar growth rates (even higher) had also been achieved by such countries as Korea, Taiwan, and Singapore. On the other hand, Thailand possesses several unique physical, demographic, and economic characteristics that make such a study interesting. For example, despite its being labelled an upcoming newly industrializing country (NIC), Thailand still has two-thirds of its population employed in the agricultural sector, where the per capita value-added is less than 10 per cent of the per capita value-added of the industry and service sectors. Thailand has only one large city, Bangkok, whose extreme primacy is already well known, and the level of urbanization is still low compared with other countries at the same level of economic development.

In many respects, the growth of Thailand is seen as the growth of Bangkok, and vice versa.¹ Bangkok provides a powerful growth engine that propels the whole economy forward. In an era of rapid international communications, Bangkok could serve as an important growth centre of the Asia-Pacific region, particularly the Indo-China or the Golden Peninsula region. That Bangkok has become a world city is widely accepted, but how can Bangkok share its wealth and prosperity with other cities in the nation? How well has Bangkok provided growth linkages with other regions? How tenable is the situation in which Bangkok prospers while the rest of the country or much of it is still poor? What are the costs of growth and prosperity as far as Bangkok and the rest of the country are concerned? What kinds of changes are pertinent in the urban system under the rapid economic growth of Thailand? These are a few of the questions that will be raised and discussed in this chapter.

Before the changes in the urban system in Thailand are discussed, the next section will briefly discuss the pattern of growth and transformation of the Thai economy in the past three decades, especially in the last half of the 1980s, to give a broad picture of how Thailand slowly changed from a rural-based society to an increasingly urban-based society. The third section describes the overall patterns and trends of population, urbanization, and employment by location and sector, providing the background against which specific aspects of the urban system in Thailand can be analysed. The fourth section looks at the international dimension of the changes in the urban system, particularly the involvement of foreign trade, investment, and tourism, whereas the fifth section is concerned with the internal or domestic dimensions of such changes as changes in household income, regional inequality, rural and urban poverty, and so on. The sixth section considers the growth and urbanization of Bangkok in the context of the Thai economy. Its urban development conditions will be discussed, its major urban problems analysed, and some specific measures for coping with existing and expected problems evaluated. Finally, the above changes in the urban system under rapid economic growth form the basis upon which a future national urban development policy could be built and operated.

Growth and transformation of the Thai economy

The modern era of the Thai economy began with the launching of its first National Economic Development Plan in 1961. Prior to that, the economy was expanding at a rate of 2-3 per cent a year, with rice being the most important crop in domestic production and export. A few other crops and other primary products joined rice as major foreign exchange earners for Thailand, namely, rubber, maize, kenaf, cassava, teak, and tin. From the beginning of the first Plan, the government decided to play an active but different role in the systematic process of economic development compared with its role in the 1950s. It did so by concentrating on the provision of the necessary infrastructure for the economy, and allowing the private sector to lead the economy through private investment and transactions.

The Thai economy has been growing well since the launching of this first Plan. The growth rate of GDP in the first 10 years between 1960 and 1970 averaged about 7.9 per cent per annum. Across sectors, industrial activities (which included manufacturing) grew the fastest, at 10.9 per cent per annum. Agricultural growth was lower at 5.5 per cent, but this was still higher than its historical trend. The service sector consequently benefited from the growth in both agricultural and industrial sectors.

During the second decade of systematic development, the overall economic expansion became slower. The GDP growth rate during 1970-1980 averaged about 6.9 per cent per annum. Still, this was a satisfactory rate of growth, with all sectors performing well across the economy. The early 1980s were of course the period of world recession, which also affected the GDP growth of Thailand. In 1985, GDP grew at 3.5 per cent over the previous year. Although this was one of the lowest growth rates ever experienced in Thailand, it is still considered to be quite satisfactory during a time when many other successful economies were experiencing zero or negative growth rates. In 1987, however, there was a dramatic economic upturn, and the trend continued in 1988 when a growth rate of 13.2 per cent was achieved. This has been the highest growth rate ever experienced in modern Thai economic history.

The economic transformation between agriculture and industry had taken place even before the first Plan, but the process was heightened when the economy entered the modern era in 1961. The share of agriculture in total GDP in 1960 was estimated at about 39.8 per cent. This share was progressively reduced to 28.3 per cent in 1970, 25.4 per cent in 1980, and finally to about 15.0 per cent in 1989. Over the same period, the share of industry increased from 18.2 per cent in 1960 to about 37.5 per cent in 1989, with manufacturing being the most important component in industrial development. Based on this simple index of relative productive contribution, the share of the manufacturing subsector in GDP surpassed that of the agriculture sector around 1984. For some, this is regarded as an important turning point in Thailand's economic development on its road to becoming a full-fledged NIC.

It should be noted that, although the share of the industrial sector in GDP continued to increase, this growth in production and income was not matched by a growth in industrial employment. In other words, the economic transformation from agriculture to industry occurred only in terms of value-added, but not much in terms of employment. As will be discussed in detail later, despite almost three decades of active development, an overwhelming proportion of the population were still engaged in agriculture. For example, the census data showed that, in 1960, 82.4 per cent of the population were found in the agricultural sector, whereas the corresponding proportion in the manufacturing sector was only 3.4 per cent in the same year. In 1980, the agricultural population was still very high at 72.5 per cent. The latest labour force survey for 1988 put the proportion of the agricultural population at 66.4 per cent and the industrial population at 18.8 per cent. With the share of agriculture in 1988 GDP standing at 16.4 per cent and industry at 34.0 per cent, respectively, it is not difficult to see the "imbalance" in the economic development of Thailand.

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