In this paper a representative agent model of the optimal level of saving and the current account balance for a small open economy is applied to Thailand. The optimal values of these variables are compared with the actual values for the period 1976 to 1995. This comparison enables an evaluation of the level of saving and overseas borrowing by Thailand over the period. The results for most scenarios suggest that Thailand under‐saved and over‐incurred foreign liabilities in the 1980s but that the reverse occurred during 1990–95. There is also evidence that since economic liberalization Thailand has been able to use the world capital market to achieve saving and current account outcomes which are more closely correlated with their optimal levels. This suggests an improvement in economic welfare associated with the period of liberalization. Finally, simulations show that annual increases in optimal national saving need only be very small in order to ensure relatively low steady‐state levels of optimal foreign liabilities.