Openness and Productivity Reform: Lessons for Middle-Income Economies from Thailand and other ASEAN

Overview & Synopsis

How can middle-income economies convert trade openness and productivity-enhancing reforms into higher real income and welfare? This paper develops a quantitative trade model with input-output linkages and labor market frictions to assess the impact of trade and productivity reforms on real income, wages, trade, and production. Thailand and ASEAN provide a useful case because the region spans economies with very different approaches to growth: some deeply embedded in Asian manufacturing value chains, others focused on commodities, export-led industrializers, and countries pursuing more selective integration. This variation allows assessing when openness yields large welfare gains, when productivity reforms matter more, and when the two are complementary. The results show that openness gains depend on domestic capabilities, while productivity gains depend on access to inputs and markets. The policy implication is a twin agenda: reduce trade frictions in connectivity, customs, logistics, standards, certification, and regulatory recognition, while strengthening firm productivity, supplier capabilities, and manufacturing-related services in high-growth sectors and global value chains.