Econometric analysis on economies of scale: An application to rice and shrimp production in Thailand by Thamrong Mekhora

Shrimp production in Thailand has historically been undertaken in the saline and brackish waters of coastal mangroves. In recent years rising demand and prices for shrimp and falling productivity of mangrove areas have motivated an expansion of shrimp production into the fresh-water margins of river estuaries that were previously used for rice cultivation. Generalised additive models, which offer a comprehensive approach to regression analysis, are mainly used for empirical analysis, and model development and specification for rice and shrimp production in this study. This paper presents a brief introduction to generalised additive models, discusses how they are applied to develop cost functions to satisfy the restriction of production theory, and describes a comparative economic analysis of shrimp and rice production. A final result was found that rice production is characterised by constant returns to scale, and shrimp production by increasing returns to scale. On this basis it was concluded that shrimp production will continue to expand in the fresh-water areas, displacing rice production and exacerbating environmental problems. Key word: rice, shrimp, returns to scale.