Labor-intensive industries in middle-income countries: traps, challenges, and the local garment market in Thailand

Abstract

How can labor-intensive industries in middle-income countries avoid the ‘middle-income trap’ and evolve as dynamic industries? This article addresses this question by focusing on the local garment industry in Thailand. Thailand's garment industry became fully integrated into international production networks in the 1980s, and was once among the main drivers of its manufacturing-based export growth. However, with rising wages and labor shortages, there is strong need to upgrade and shift from labor-intensive assembly to higher value-added functions. In contrast to the export-oriented sector, the local garment markets are primarily served by small informal garment suppliers. Nevertheless, some of the suppliers undertake functions that are typically more knowledge intensive, including designing and marketing. In this context, this paper discusses what implications this local-based industry has in overcoming possible middle-income traps, and suggests that domestic oriented policies could play key roles.