Economy ISSN: 2313-8181 Vol. 1, No. 1, 20-31, 2014 www.asianonlinejournals.com/index.php/Economy 20 Political Instability and the Effectiveness of Economic Policies: The Case of Thailand from 1993-2013 Jonathan E. Leightner 1 --- Tomoo Inoue 2 1 Hull College of Business Administration Georgia Regents University, Georgia, USA 2 Faculty of Economics Seikei University, Kichijoji-kitamachi, Musashino-shi Tokyo, Japan Abstract This work is licensed under a Creative Commons Attribution 3.0 License Asian Online Journal Publishing Group 1. Introduction Thailand’s political/economic history from 1993 to 2013 is filled with changes in Thailand’s economic policies, political situation, and external environment. This time period involves the opening of an international banking center, a speculative attack, the collapse of an exchange rate that had been successfully fixed for thirteen years, the acceptance of a 17.2 billion dollar loan from the IMF along with the conditions that came with that loan, the political rise of Thaksin Shinawatra, the biggest land-slide election victory in Thai history, another election in which the opposition did not win enough seats to even initiate a censor debate, government condoned killing of drug lords and Muslims, the use of political power to enrich the Shinawatra clan, massive street protests in Bangkok, the calling of a snap election that the opposition boycotted and that resulted in a constitutional crisis, Thailand’s king telling Thailand’s judges to fix the situation or wear chamber pots over their heads to cover their s hame, an annulling of the boycotted election, a coup, new elections, protesters taking over Bangkok’s international airport, a new government, different protestors taking over the central business/shopping area of Bangkok, the army dispersing the protesters while several malls burn, the election of Thaksin’s sister, Yingluck, as Thailand’s first female prime minister, and a failed rice manipulation scheme by the government (Leightner, 2007b). Immediately after this time period there was another coup. It is impossible to create a macroeconomic model that would capture the effects of all of these structural changes, but all of these changes could potentially modify the effectiveness of government policies by directly affecting the economy or by affecting internal and/or external business expectations. Even if such a model could be developed, there would be insufficient data to estimate it because the shortest temporal length for gross domestic product (GDP) data for Thailand is quarterly and there are too few observations between major structural changes. Fortunately, Leightner (2015) has developed a regression procedure that produces unbiased estimates that capture the influence of omitted variables without having to identify, quantify, find proxies for, or model the influence of these important, but omitted variables. Between 1993 and 2013, the Thai economy suffered from massive changes in its economy, political situation, and external environment. Given data constraints and the rapidity of the changing situation, it is impossible to create an adequate macroeconomic model for Thailand during this time period. Thus we use a statistical method designed to solve the omitted variables problem with regression analysis. This method produces a separate slope estimate for every observation which makes it possible to see how omitted variables are affecting the estimated relationships over time. We use this method to estimate dGDP/dG, dGDP/dMB, dGDP/dX, dGDP/de, and dGDP/dReserves using quarterly Thai data from 1993 to 2013 where GDP is gross domestic product, G is government consumption, MB is the monetary base, X is exports, e is the baht/US$ exchange rate, and Reserves are foreign reserves. We find that the pro-equality policies of the Thaksin regime were helpful and that export driven growth is no longer a viable option for Thailand. Although we approve of Thaksin’s economic policies, we disapprove of other aspects of his regime. Keywords: Fiscal policy, Monetary policy, Trade policy, Thailand, Omitted variables.