1. Fiscal Policy and Regional Inequality in Thailand: 2000 vs. 2009.
Emmanuel Skoufias and Sergio Olivieri
PREM Knowledge and Learning Forum
April 25, 2011

2. Outline
Motivation
Regional Poverty and Inequality trends in Thailand
Welfare Disparities Between & Within Regions: vs. 2009
Welfare Disparities Between & Within Provinces: 2000 vs. 2009
Province “needs” vs. Fiscal Expenditure Allocation
Concluding Remarks & Policy Considerations
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3. 1. Motivation
Lack of consensus on how to deal with the problem of differences in the standard of living between regions.
Many of these programs are targeted towards “poor regions”, while
other programs are targeted towards “poor people”
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4. Returns Characteristics
1. Motivation Explaining Regional Welfare Disparities: Two extreme views
Returns
or Geography
Returns to capital and labor remain different across space.
Policy Implication:
Invest in territorial development programs
Characteristics
or Concentration
Poor individuals with low human capital (and other assets) are spatially concentrated
Policy Implication:
Targeted (instead of universal) programs/investments in human capital development (e.g. CCTs )

5. 1. Questions addressed
What is the primary explaining factor (correlate) of welfare disparities among/within regions (or provinces)?
is it differences in the characteristics ?
e.g. urban areas attract the more educated people and have better infrastructure
Is it differences the returns to characteristics?
e.g. The returns to education are generally higher in the urban areas compared to the rural areas

6. 1. Policy Relevance If differences in returns:
Limits of migration in equalizing the returns to characteristics across regions
Markets that are segmented are across regions
Policy implication: Primary focus on territorial development programs
If differences in characteristics:
Migration of households across space is able to equalize returns across regions, but concentration of individuals with “poor” endowments (low education) in the poorer regions.
Policy Implication: Primary focus on targeted (not universal) human capital development programs ( e.g. CCTs)

7. 1. Regional Poverty and Inequality trends in Thailand 2000-2009
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8. Regional Poverty Trends: 2000-2009 Thailand
These are calculated based on Consumption expenditure
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9. Regional Inequality Trends: 2000-2009 Thailand
These are calculated based on Consumption expenditure
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10. 3. Welfare Disparities Between and Within Regions:
2000 vs. 2009
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11. a. Regional Welfare Disparities Questions
Question 1: How large are the disparities in welfare within regions of Thailand in 2009?
Welfare differences: urban vs rural areas within each region
Question 2: How large are the disparities in welfare between/across regions of Thailand in 2009?
Welfare differences: whole region (urban & rural) vs Bangkok
Welfare differences: urban vs Bangkok
Welfare differences: rural vs rural in NE
Question 3: What is the primary explaining factor (correlate) of welfare disparities across/between regions in Thailand in 2009?
Is it differences in the “returns” to education, occupation, sector of employment
OR is it differences in the characteristics themselves ( % of pop with secondary education, % of pop in certain occupations, % of pop in manufacturing)?
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12. a. Regional Welfare Disparities Questions
Question 4: How has the relative role of returns and characteristics changed between 2000 and 2009?
Are the observed changes (if any) in the role of returns or characteristics in explaining welfare differences across provinces consistent with the patterns of economic growth, migration, and/or the government policies between 2000 and 2009?
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13. b. Welfare Differences WITHIN Regions Urban vs
b. Welfare Differences WITHIN Regions Urban vs. Rural areas (Bangkok excluded)
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14. c. Explaining Welfare Differences WITHIN Regions Urban vs
c. Explaining Welfare Differences WITHIN Regions Urban vs. Rural areas (Bangkok excluded)
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15. d. Welfare Differences BETWEEN Regions Region vs. Bangkok
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16. e. Explaining Welfare Differences BETWEEN Regions vs. Bangkok
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17. f. Welfare Differences BETWEEN Regions Urban areas vs. Bangkok
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18. g. Explaining Welfare Differences BETWEEN Regions Urban areas vs
g. Explaining Welfare Differences BETWEEN Regions Urban areas vs. Bangkok
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19. h. Welfare Differences BETWEEN Regions Rural areas vs. Rural NE
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20. i. Explaining Welfare Differences BETWEEN Regions Rural areas vs
i. Explaining Welfare Differences BETWEEN Regions Rural areas vs. Rural NE
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21. j. Regional Welfare Disparities: Summary of Findings
Within Regions: Differences in household characteristics are the main correlate of welfare disparities between urban and rural areas of each region (both in 2009 and in 2000)
Mobility between U and R areas within any given region manages to equalize returns to characteristics
Between/across regions:
Whole regions vs Bangkok: differences in characteristics are the main correlate of welfare disparities among regions in Thailand (both in and in 2000)
Urban areas by region vs. Bangkok: differences in returns are the main correlate of welfare disparities among regions.
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22. j. Regional Welfare Disparities: Summary of Findings
Between/across regions:
Rural areas vs. rural Northeast: differences in the returns to household characteristics are the main correlate of welfare disparities among regions in Thailand (both in 2009 and in 2000) except North 2009
These results are in sharp contrast with results in Latin American countries where differences in the characteristics are the main correlates of welfare differences
Consistent with the presence of agglomeration economies
Limits of migration in equalizing the returns to characteristics across regions
 Markets that are segmented across regions?? Check
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23. 4. Welfare Disparities Across Provinces: 2000 vs. 2009
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24. a. Welfare Differences across Provinces: Questions Addressed
Question 1: How large are the disparities in welfare between/across provinces of Thailand in 2009 and 2000?
Question 2: What is the primary explaining factor (correlate) of welfare disparities across/between provinces in Thailand in 2009 and 2000?
Is it differences in the returns to education, occupation, sector of employment
OR is it differences in the characteristics themselves ( % of pop with secondary education, % of pop in certain occupations, % of pop in manufacturing)?
For methodology see Annex
RESULT: Differences in the returns to household characteristics are the main correlate of welfare disparities among provinces in Thailand (both in 2009 and in 2000)
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25. b. Welfare Differences Across Provinces in 2009
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26. c: Explaining Welfare Differences Across Provinces and Years
In each year, we investigate the correlation between the actual welfare ratio and two simulated welfare profiles:
(i) Returns (Geographic profile): the simulated welfare ratio holding characteristics at the province level constant (and allowing returns to differ across provinces)
(ii) Characteristics (Concentration profile): the simulated welfare ratio holding “returns” at the province level constant (and allowing characteristics to differ across provinces)
In both years, there is a stronger correlation between the actual welfare profile and the returns profile
In 2009 the correlation between the actual welfare profile and the returns profile is stronger, while the correlation between the actual welfare profile and the characteristics profile is weaker.
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27. c: Explaining Welfare Differences Across Provinces and Years: Correlation between Actual and Simulated (log) Welfare Ratios in 2009
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28. c: Explaining Welfare Differences Across Provinces and years: Correlation between Actual and Simulated (log) Welfare Ratios in 2000
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29. Fiscal Expenditure Allocation
5. Province Needs vs.
Fiscal Expenditure Allocation
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30. a. Province Needs vs. Fiscal Expenditure Allocation
Question 1: Is there a “needs-based” allocation of provincial investment expenditures?
Need (=Welfare ratio in 2000 vs. Change in per capita investment expenditures between 2006 and 2009)
Need (= welfare returns to being employed in a given sector vs. Change in per capita investment expenditures between and 2009)
A negative correlation consistent with needs-based allocation of provincial investment expenditures (e.g. would expect a higher allocation of fiscal expenditures to provinces with a lower welfare ratio (more needs) or a lower return to being employed in the industrial or service sector).
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31. Negative correlation in all items, but
a. Province Needs vs. Fiscal Expenditure Allocation: (i) Need: Welfare ratio in 2000 vs. change in investment expenditures
Negative correlation in all items, but
Very Low and only significantly different from zero in Economic Services and Others
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32. Negative correlation with changes in Other Expenditures
a. Province Needs vs. Fiscal Expenditure Allocation (ii) Need: welfare returns to being employed in a given sector in 2000 vs. change in investment expenditures
Positive but insignificant correlation between changes in expenditure and sectoral “returns” but
Negative correlation with changes in Other Expenditures
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33. b. Province Needs vs. Fiscal Expenditure Allocation
Question 2: Is the change in provincial welfare correlated with the change in provincial per capita investment expenditures?
A positive correlation would suggest some impact on welfare that can be attributed to the provincial per capita INVESTMENT expenditures
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34. b. Province Needs vs. Fiscal Expenditure Allocation:
Positive but insignificant correlations between changes in annual growth rates of Welfare Ratio and per capita Total Investment
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35. c. Province Needs vs. Fiscal Expenditure Allocation
Question 3: Do earlier (2006) provincial investment expenditures have an effect on the current (2009) marginal welfare gains to being employed in a given sector?
Earlier analysis revealed that differences in the returns are the primary explanatory factor for the differences in welfare across provinces. A positive correlation would suggest some impact on the returns to welfare that can be attributed to the provincial INVESTMENT expenditures
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36. c. Province Needs vs. Fiscal Expenditure Allocation
Positive but insignificant correlation between actual sectoral “returns” and investment expenditure of previous year
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37. 6. Concluding Remarks and Policy Considerations
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38. Concluding Remarks & Policy Considerations
Focus on policies that aim to equalize opportunities for welfare (rather than equalize welfare itself).
Different sets of policies are appropriate for addressing welfare inequalities within regions and across regions.
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39. Concluding Remarks & Policy Considerations
Within Regions: Differences in household characteristics are the main correlate of welfare disparities within urban and rural areas of each region (in 2009 and in 2000)
Policy Implications:
Programs targeted to rural areas increasing the portable human capital of the poor (CCT programs, and investments in increasing access to basic public services, such as water and sanitation and electricity).
Increased role and relevance of decentralized decision making (e.g. Targeting of CCT program beneficiaries).
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40. Concluding Remarks & Policy Considerations
Across Regions: Differences in returns household characteristics appear as the main correlate of welfare disparities.
Issues for further investigation
Limits of migration in equalizing the returns to characteristics across regions ?
Impediments to labor mobility towards the areas of economic opportunity?
Market segmentation and limited connectivity?
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41. Concluding Remarks & Policy Considerations
There are a lot of opportunities to be realized by improving the role of fiscal expenditure allocation (from the Center) as an instrument of addressing the “needs” of provinces in terms of low welfare or low returns
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