Role of FDI on Thailand's export growth

Abstract

Foreign direct investment has long been accepted for its benefits as a tool to raise country's productivity and finally increase the country's export. However, although Thailand experienced a substantial growth for both export and FDI, and despite the finding of complementarity relationship by most literatures, in the case of Thailand, the macroeconomic relationship between FDI and export has been barely test. So, the analysis in this paper concentrates the empirical relationship between inward FDI and export and aims at the analysis of whether FDI plays role on Thailand's export growth or not, with Thailand annual data for the period 1972-2002. The study divides the analysis into two parts which are qualitative analysis and quantitative analysis. From the study, it is found that while export has increased, the export structure changed from low-value product to higher-value product, in line with the increase of FDI which especially flows to higher-technology manufactured product. The results of both parts point to the existence of long-run and short-run causality from inward FDI to export, according to a complementarity relationship, for the Thailand case during the period of analysis. However, the rapid drop of FDI in later years of the study reflects the loss of competitive ability of attracting FDI which is the important problem that government has to solve by developing policies. First, according to the importance of high value-added products export, the country should concentrate on high-tech-intensive industries. Next, the country should develop new competitive advantages and last, clusters should be promoted to increase the ability of competitiveness.