Thailand needs to encourage greater domestic competition and address shortcomings in national governance, human capital and technological development to ensure its future global competitiveness, according to two papers by Bank of Thailand (BOT) officials.

Both papers are to be presented at the central bank's annual symposium, at the Shangri-La Hotel on August 9 and 10.

"Strengthening the Competitiveness of Thai Firms: What Needs to be Done?" was written by Monetary Policy Group members Kiatipong Ariyapruchya, Chatsurang Kanchanasai and Cheerapan Olanthanasate.

According to their research, economic growth over the past two decades was achieved primarily through factor accumulation. The gains from factor accumulation will eventually end. Furthermore, the entry of China and India into the global economy heralds a new era of rising competition and relentless change.

If Thailand is to continue on its journey toward economic prosperity, policy-makers must identify and build the foundations for long-run growth. To this end, domestic market competition can serve as a foundation for growth by giving firms the incentive to raise productivity and acquire the ability to thrive in the global marketplace.

The research examines the empirical relationship between product-market competition and firms' productivity. Using a rich panel data set of Thai manufacturing firms, the researchers estimate firm total factor productivity and measures of product-market competition such as economic rent, price dispersion, market concentration and market-entry paperwork. The researchers found that increased product-market competition encouraged firm efficiency. Product-market competition can also engender productivity growth and innovation. Young firms tend to be more efficient and invest more in capital and research, reflecting the importance of fluid markets and creative destruction.

The challenge for policy-makers will be how to harness the forces of market competition to ensure that the firms can raise productivity and adapt to rising competition. The researchers outline how an appropriate competition policy can also serve to encourage innovation, which will become increasingly important to Thailand's long-run prosperity as the Thai economy exhausts the gains from factor accumulation and imitation and moves toward becoming a knowledge-based economy.

"Thailand in the New Asian Economy: The Current State and Way Forward" was prepared by two members of the central bank's economic research department, Pichit Patrawimolpon and Runchana Pongsaparn.

Their paper is an attempt to analyse Thailand's "true competitiveness" through a wide range of macro- and microeconomic aspects.

According to the Institute for Management Development, for example, competitiveness is not solely about economic performance but encompasses all elements that can explain the success of a nation, including government efficiency, business proficiency and infrastructure. Based on this broad framework, Thailand appears relatively strong in the macroeconomic environment and policies, while there are signs of weakness in government efficiency, human capital, research and development and technology.

After considering Thailand's competitive position in the world, the paper turns towards the domestic economy, putting the complex interaction between foreign direct investment (FDI), the private sector and government policies into perspective.

From these analyses, various paths towards opening Thailand emerge, two of which are particularly interesting: Should Thailand continue to grow on FDI-based hi-tech exports with somewhat less value creation on its own, or should it turn to more traditional strengths, such as processed food and rubber?

In the final analysis, a combination of the two will probably be appropriate, but in what combination? How to get there? What is needed in terms of further adjustments and reforms at the firm's level, fuel-efficiency frontier, human-resources development and regional cooperation?