The impact of financial intermediation efficiency on Thailand’s total factor productivity

Abstract

This study aimed to measure Thailand’s total factor productivity and also investigate the impact of financial intermediation efficiency on it during 2001-2024. The financial intermediation efficiency in this study was measured by three indicators, including interest rate spread, business sector credit ratio and non-performing loans ratio. Additionally, the growth accounting equation was applied to calculated the total factor productivity growth rate, whereas Autoregressive Distributed Lag model was employed to examine the impact of financial intermediation efficiency on it. The findings revealed that Thailand’s total factor productivity growth was volatile over the study period, with several years of negative performance, and that its average growth rate was only 0.15% per year. The long-run results from Autoregressive Distributed Lag model indicate that financial intermediation efficiency significantly affects total factor productivity growth in the long run as business sector credit has a positive effect on total factor productivity growth, while non-performing loans exert a negative impact on it. However, the interest rate spread does not affect total factor productivity growth in the long run. In the short run, the results further confirmed that total factor productivity growth is significantly determined by financial intermediation efficiency. Specifically, the change in business sector credit has the positive effect on the change in total factor productivity growth whereas the change in interest rate spread has the negative impact on it. Nevertheless, the change in non-performing loan does not have any effect on the change in total factor productivity growth in the short run. The findings provide practical guidance for policymakers and financial regulators in improving credit allocation and supporting productivity-driven economic growth.