Technological development
Why has Thailand grown faster than Indonesia since the 1960s? Differential technological progress offers a more satisfactory explanation than initial conditions, factor endowment or long-run macroeconomic stability. The argument is supported by a brief survey of related topics such as factor productivity, structural change, access to new technology through foreign trade and investment, R & D expenditure and the institutional framework of technology policy. The twin theme of a time-lag hypothesis and country-specific characteristics of technological progress emerges from these discussions.
Indonesia lagged behind Thailand by about ten years, or slightly more, on several accounts including per capita GDP growth, value-added in manufacturing, exports of capital goods and application of medium- or high-level technology in manufacturing production. It is worth noting that some of these variables are directly connected to the pace of technological progress. The important question, however, is whether the observed difference is more than a time-lag, i.e. will Indonesia simply follow the Thai example in due course? To an extent this will surely happen but there is reason to suspect that other bottlenecks than in Thailand will have to be overcome. This brings us to the country-specific characteristics of technological progress.
It is demonstrated above that Thailand enjoyed, and still enjoys, a lead above Indonesia in total factor productivity, the extent of structural change, the orientation of FDI towards technology- and knowledge-based production and average educational attainment although differences in R & D spending appear rather marginal. This all points in the direction of a higher institutional efficiency in the process of technological progress in Thailand as opposed to Indonesia. By implication, Indonesia will have to make a concerted effort to overcome such difficulties in order to catch up with Thailand. Technology policy in Indonesia needs to address institutional weaknesses and, above all, shortcomings in the capacity of the labour force to absorb new technology. Measures to combat corruption and raise levels of educational achievement, both quantitatively and qualitatively speaking, are essential for Indonesia will it end up where Thailand has already arrived.