An export-led economy is no longer a viable strategy for developing nations such as Thailand, says this year's Trade and Development Report from the UN Conference on Trade and Development (Unctad).
The global economy can no longer support pre-2008 growth strategies, so policymakers in developing countries should move away from wage and export competition.
Instead, they should focus on strengthening domestic and regional demand, said Watcharas Leelawath, deputy director of Thailand's International Institute for Trade and Development, which was tasked with presenting the report yesterday.
Domestic demand must be spurred by boosting the number of middle-class consumers and their purchasing power without increasing household debt, he said.
But Pisit Puapan, director of macroeconomic analysis in the Finance Ministry's Fiscal Policy Office, said this will not be sustainable strategy in the long run if productivity does not increase in accordance with purchasing power.
The report advocated an enhanced central bank role through support for productive investment in infrastructure and industries.
Small and medium-sized enterprises and new businesses should be supported, as these play a major role in boosting employment and productivity.
In the long run, this will simultaneously raise household purchasing power and productivity, said the report.
However, it failed to mention where or in which types of business to invest domestically, said Mr Pisit.
It also cautioned against excessive reliance on foreign investment inflows and financial instability, saying that doing so tends to focus on consumption and speculative investment.
This in turn leads to a bubble, which once burst affects the whole economy.
Instead, countries such as Thailand should focus on increasing domestic sources of finance and profit retention while adopting a cautious and selective approach to foreign capital once the Asean Economic Community liberalises capital flow.
The direction of global trade is shifting towards intra-regional trade.
Yet this shift will not be sustainable if it triggers trade deficits without strong domestic demand to back it up, said Mr Watcharas.
But while high-population nations such as India and China can rely on domestic consumption to stimulate their economy, countries with smaller populations such as Thailand need Asean more than ever to boost regional trade.
The report said while Asean as a whole is following Unctad recommendations, the grouping has yet to strengthen members' domestic demand.