Role of Human Capital Accumulation and Avoiding the Middle I Income Trap in Thailand

Abstract

This paper investigates the role of human capital accumulation to avoid the middle income
trap in Thailand using the dynamic stochastic general equilibrium approachwith the
endogenous growth driven by human accumulation based on the Uzawa-Lucas framework. It
is a two sector model with two production functions devoted respectively to produce human
capital and physical capital. The model is calibrated for the Thai economy during 2005-2012.
The transitional dynamics is the main feature to study the possibility of the Thai economy to
escape from the middle income trap. The paper shows that output performs monotonically
increasing when there are favorable disturbances in two sectors. It asserts that the three time
consistent increases in standard deviation ofthe disturbancesfor 60 quarters in the educational
sector and production sector could possibly move the Thai economy above the middle
income level in 16 years. The model also predicts that the growth rate of Thai economy is
3.2 percent per year in the first quarter and it continuously rises to 10 percent per year in the
60th quarter. Then the growth rate of the Thai economy quickly declines to a constant level
after 80 quarters.