Factors Affecting the Foreign Direct Investment in Thailand: Do Political Events Play a Role?
##plugins.themes.bootstrap3.article.sidebar##
Published
Oct 18, 2022
##plugins.themes.bootstrap3.article.main##
Abstract
Over the past decade, Thailand has been losing shares of Foreign Direct Investments to ASEAN peers, particularly Indonesia and Vietnam. Several factors such as wage, skilled labor and political instability have been cited to be contributing factors by qualitative sources, with limited quantitative research. This research proposed a multiple regression analysis on the on the Difference of Logarithm technique with one-year lagged using economic and external control variables, such as Market Potential, Trade Openness, Infrastructure Availability, and External Shocks, represented by Flood and the COVID-19 pandemic and FDI on a quarterly basis during 2005 to 2020. Results demonstrated that GDP, one-year lagged of infrastructure availability, and one-year lagged of political events had a positive and significant relationship with FDI inflow, while negative impact over FDI was found in trade openness and natural disasters. Furthermore, only the COVID-19 pandemic was found to have an insignificant impact. In term of policy implication, priority should be placed on projects that will prepare Thailand overall infrastructure, continual support on international trade policy, and FDI incentives. Finally and most importantly, the administrative mechanism of relevant government units should focus on ensuring continual execution of such initiatives.
Keywords: Foreign Direct Investment, Political Events, Thailand, Market Potential, Trade Openness, COVID-19 Pandemic
References
Addison, T., & Heshmati, A. (2003). The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization. In UNU/WIDER Conference on the New Economy in Development, 10-11 May 2002, Helsinki (Discussion Paper No. 2003/45). Helsinki, Finland: UNU-WIDER. Retrieved from https://www.wider.unu.edu/publication/new-global-determinants-fdi-flows-developing-countries
Agosin, M. R., & Machado, R. (2007). Openness and the International Allocation of Foreign Direct Investment. The Journal of Development Studies, 43(7), 1234-1247. https://doi.org/10.1080/00220380701526410
Anuchitworawong, C., & Thampanishvong, K. (2015). Determinants of Foreign Direct Investment in Thailand: Does Natural Disaster Matter? International Journal of Disaster Risk Reduction, 14, 312-321. https://doi.org/10.1016/j.ijdrr.2014.09.001
Arbatli, E. (2011). Economic Policies and FDI Inflows to Emerging Market Economies (IMF Working Paper, No. 11/192). Retrieved from https://www.imf.org/external/pubs/ft/wp/2011/wp11192.pdf
Asiedu, E. (2002). On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30(1), 107-119. https://doi.org/10.1016/S0305-750X(01)00100-0
Baek, K., & Qian, X. (2011). An Analysis on Political Risks and the Flow of Foreign Direct Investment in Developing and Industrialized Economies. Economics, Management and Financial Markets, 6(4), 60-91. Retrieved from https://politicalscience.buffalostate.edu/sites/politicalscience.buffalostate.edu/files/uploads/Documents/baekfdi.pdf
Bangkokbiznews. (2014, June 27). Even though Thai FDI was Rose in 2013, Political was “Weakness”. Retrieved from https://www.bangkokbiznews.com/news/detail/590343
Bank of Thailand. (2011). Mega Flood 2011: Thai Flood Survey. Bangkok: Bank of Thailand. Retrieved from https://www.bot.or.th/Thai/MonetaryPolicy/EconomicConditions/AnalysisBLP/1ThaiFloodSurvey2011.pdf
Bodea, C., & Elbadawi, I. A. (2008). Political Violence and Economic Growth (Policy Research Working Paper No. 4692). Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/6805/WPS4692.pdf?sequence=1
Busse, M., & Hefeker, C. (2007). Political Risk, Institutions and Foreign Direct Investment. European Journal of Political Economy, 23(2), 397-415. https://doi.org/10.1016/j.ejpoleco.2006.02.003
Chanvipaswongse, S. (2020, October 9). What would Happen to Thai’s Industry if Japanese Factories Moved to Vietnam. EBCI. Retrieved from https://ebcinext.com/archives/1540
Chewchinda, P. (2020, August 29). CIMB Thai Pointed ASEAN’s Economic Gained Benefit after Japan Switching Manufacturing from China to ASEAN with 6 Factories in Thailand. ThaiPublica. Retrieved from https://thaipublica.org/2020/08/cimb-thai-sees-asean-strong-recovery-01/
Chueykamhang, T. (2018, June 12). To Understand Foreign Investor’s Aspects throughout FDI Confidence Index and Implication of Thailand’s FDI in 2018. Bank of Thailand. Retrieved from https://www.bot.or.th/Thai/ResearchAndPublications/articles/Pages/Article_12June2018.aspx
Dautrey, J. (2010). Foreign Direct Investment and Thailand’s Color-coded Politics: The Thai Paradox - Will it Endure? AU-GSB e-Journal, 3(1), 3-12. Retrieved from http://www.assumptionjournal.au.edu/index.php/AU-GSB/article/view/403
Dorian, A. (2019, September 12). Thai Politics and Coup Culture. OWP. Retrieved from https://theowp.org/thai-politics-and-coup-culture/
Escaleras, M., & Register, C. A. (2011). Natural Disasters and Foreign Direct Investment. Land Economics, 87(2), 346-363. http://doi.org/10.3368/le.87.2.346
ESCAP. (2020, November 19). Promoting Inward and Outward Foreign Direct Investment in the Post-Coronavirus-disease Era. Retrieved from https://www.unescap.org/sites/default/files/CTI7_2_item%203_E%20%281%29.pdf
Goswami, G. G., & Haider, S. (2014). Does Political Risk Deter FDI Inflow? An Analytical Approach Using Panel Data and Factor Analysis. Journal of Economic Studies, 41(2), 233-252. https://doi.org/10.1108/JES-03-2012-0041
Hoang, H. H. (2012). Foreign Direct Investment in Southeast Asia: Determinants and Spatial Distribution (Working Paper Series No. 2012/30). Vietnam: Development and Policies Research Center (DEPOCEN). Retrieved from http://depocenwp.org/upload/pubs/30-Foreign%20Direct%20investment%20in%20Southeast%20Asia.pdf
Hussain, Z. (2014, June 1). Can Political Stability Hurt Economic Growth? World Bank Blogs. Retrieved from https://blogs.worldbank.org/endpovertyinsouthasia/can-political-stability-hurt-economic-growth
Khadaroo, A. J., & Seetanah, B. (2010). Transport Infrastructure and Foreign Direct Investment. Journal of International Development, 22(1), 103-123. https://doi.org/10.1002/jid.1506
Khan, M. M., & Akbar, M. I. (2013). The Impact of Political Risk on Foreign Direct Investment (MPRA Paper No. 47283). Retrieved from https://mpra.ub.uni-muenchen.de/47283/
Kok, R., & Ersoy, B. A (2009). Analyses of FDI Determinants in Developing Countries. International Journal of Social Economics, 36(1/2), 105-123. https://doi.org/10.1108/03068290910921226
Kumar, N. (2006). Infrastructure Availability, Foreign Direct Investment Inflows and their Export-orientation: A Cross-country Exploration. The Indian Economic Journal, 54(1), 125-144. https://doi.org/10.1177/0019466220060108
Kurlantzick, J. (2013, December 19). Thailand’s Political Crisis—Not so Unique. Council on Foreign Relationship. Retrieved from https://www.cfr.org/blog/thailands-political-crisis-not-so-unique
Li, Q. (2006). Chapter 11 Political Violence and Foreign Direct Investment. In M. Fratianni (Ed.), Regional Economic Integration, Research in Global Strategic Management, Vol. 12 (pp. 225-249). Bingley: Emerald Group Publishing. https://doi.org/10.1016/S1064-4857(06)12011-2
Liargovas, P. G., & Skandalis, K. S. (2011). Foreign Direct Investment and Trade Openness: The Case of Developing Economies. Social Indicators Research, 106, 323-331. https://doi.org/10.1007/s11205-011-9806-9
Mollick, A. V., Ramos-Duran, R., & Silva-Ochoa, E. (2006). Infrastructure and FDI Inflows into Mexico: A Panel Data Approach. Global Economy Journal, 6(1). https://doi.org/10.2202/1524-5861.1094
Moosa, I. A. (2002). Foreign Direct Investment: Theory, Evidence and Practice. New York: Palgrave Macmillan. http://doi.org/10.1057/9781403907493
Multilateral Investment Guarantee Agency. (2011). World Investment and Political Risk 2010. Washington, DC: World Bank. Retrieved from https://openknowledge.worldbank.org/handle/10986/2538
Nigh, D. (1986). Political Events and the Foreign Direct Investment Decision: An Empirical Examination. Managerial and Decision Economics, 7(2), 99-106. https://doi.org/10.1002/mde.4090070205
Ozbozkurt, O. B., & Satrovic, E. (2018). Causal Relationship between Foreign Direct Investments and Macro-level Political Stability in Turkey. In M. B. Beros, N. Recker, & M. Kozina (Eds.), 27th International Scientific Conference on Economic and Social Development, Rome, 1-2 March 2018 (pp. 196-205). Retrieved from https://www.academia.edu/36096239/Causal_Relationship_between_Foreign_Direct_Investments_and_Macro_Level_Political_Stability_in_Turkey
Rehman, C. A., Ilyas, M., Alam, H. M., & Akram, M. (2011). The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan. International Journal of Business and Management, 6(5), 268-276. http://doi.org/10.5539/IJBM.V6N5P268
Sekkat, K., & Veganzones-Varoudakis, M.-A. (2007). Openness, Investment Climate, and FDI in Developing Countries. Review of Development Economics, 11(4), 607-620. https://doi.org/10.1111/j.1467-9361.2007.00426.x
Sethapramote, Y. (2020, November 10). Impact of Political Risk to FDI. Post Today. Retrieved from https://www.posttoday.com/finance-stock/columnist/637602
Thai Embassy. (2021). COVID-19 Guide for Travelers to and in Thailand. Retrieved from https://www.thaiembassy.com/travel-to-thailand/covid-19-guide-for-travelers-in-thailand
Thailand Board of Investment. (2020). Thailand’s E & E, Food, Auto and Medical Sectors Lead Jan-Sep Rise in Investment, BOI Applications Data Shows. Retrieved from https://www.boi.go.th/index.php?page=press_releases_detail&topic_id=127090
Thailand Board of Investment. (2021a, March 31). Thailand’s Advantages. Retrieved from https://www.boi.go.th/index.php?page=thailand_advantages
Thailand Board of Investment. (2021b, September 9). Thailand’s Rankings. Retrieved from https://www.boi.go.th/index.php?page=thailand_rankings
Thansettakij. (2020, July 26). Thailand Watching “Japan” Encourage 15 Companies Move to “Vietnam”. Retrieved from https://www.thansettakij.com/content/world/443359
TNNThailand. (2019, June 20). ‘Sharp-LG’ were going to Relocate from Thailand and Vietnam to Indonesia. Retrieved from https://www.tnnthailand.com/news/world/10465/
UNCTAD. (2006). World Investment Report 2006. Switzerland: United Nations Publications. Retrieved from https://unctad.org/system/files/official-document/wir2006_en.pdf
UNCTAD. (2020). World Investment Report 2020. New York: United Nations Publications. Retrieved from https://unctad.org/system/files/official-document/wir2020_en.pdf
Walsh, J. P., & Yu, J. (2010). Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach (IMF Working Paper No. 10/187). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1662260
Witte, C. T., Burger, M. J., Ianchovichina, E. I., & Pennings, E. (2016). Dodging Bullets: The Heterogeneous Effect of Political Violence on Greenfield FDI (Policy Research Working Papers No. 7914). Washington, DC: World Bank. Retrieved from https://openknowledge.worldbank.org/handle/10986/25813
World Bank. (n.d.). GCI 4.0: Global Competitiveness Index 4.0. Retrieved from https://govdata360.worldbank.org/indicators/ha03bec65?country=BRA&indicator=41472&viz=line_chart&years=2017,2019
Agosin, M. R., & Machado, R. (2007). Openness and the International Allocation of Foreign Direct Investment. The Journal of Development Studies, 43(7), 1234-1247. https://doi.org/10.1080/00220380701526410
Anuchitworawong, C., & Thampanishvong, K. (2015). Determinants of Foreign Direct Investment in Thailand: Does Natural Disaster Matter? International Journal of Disaster Risk Reduction, 14, 312-321. https://doi.org/10.1016/j.ijdrr.2014.09.001
Arbatli, E. (2011). Economic Policies and FDI Inflows to Emerging Market Economies (IMF Working Paper, No. 11/192). Retrieved from https://www.imf.org/external/pubs/ft/wp/2011/wp11192.pdf
Asiedu, E. (2002). On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30(1), 107-119. https://doi.org/10.1016/S0305-750X(01)00100-0
Baek, K., & Qian, X. (2011). An Analysis on Political Risks and the Flow of Foreign Direct Investment in Developing and Industrialized Economies. Economics, Management and Financial Markets, 6(4), 60-91. Retrieved from https://politicalscience.buffalostate.edu/sites/politicalscience.buffalostate.edu/files/uploads/Documents/baekfdi.pdf
Bangkokbiznews. (2014, June 27). Even though Thai FDI was Rose in 2013, Political was “Weakness”. Retrieved from https://www.bangkokbiznews.com/news/detail/590343
Bank of Thailand. (2011). Mega Flood 2011: Thai Flood Survey. Bangkok: Bank of Thailand. Retrieved from https://www.bot.or.th/Thai/MonetaryPolicy/EconomicConditions/AnalysisBLP/1ThaiFloodSurvey2011.pdf
Bodea, C., & Elbadawi, I. A. (2008). Political Violence and Economic Growth (Policy Research Working Paper No. 4692). Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/6805/WPS4692.pdf?sequence=1
Busse, M., & Hefeker, C. (2007). Political Risk, Institutions and Foreign Direct Investment. European Journal of Political Economy, 23(2), 397-415. https://doi.org/10.1016/j.ejpoleco.2006.02.003
Chanvipaswongse, S. (2020, October 9). What would Happen to Thai’s Industry if Japanese Factories Moved to Vietnam. EBCI. Retrieved from https://ebcinext.com/archives/1540
Chewchinda, P. (2020, August 29). CIMB Thai Pointed ASEAN’s Economic Gained Benefit after Japan Switching Manufacturing from China to ASEAN with 6 Factories in Thailand. ThaiPublica. Retrieved from https://thaipublica.org/2020/08/cimb-thai-sees-asean-strong-recovery-01/
Chueykamhang, T. (2018, June 12). To Understand Foreign Investor’s Aspects throughout FDI Confidence Index and Implication of Thailand’s FDI in 2018. Bank of Thailand. Retrieved from https://www.bot.or.th/Thai/ResearchAndPublications/articles/Pages/Article_12June2018.aspx
Dautrey, J. (2010). Foreign Direct Investment and Thailand’s Color-coded Politics: The Thai Paradox - Will it Endure? AU-GSB e-Journal, 3(1), 3-12. Retrieved from http://www.assumptionjournal.au.edu/index.php/AU-GSB/article/view/403
Dorian, A. (2019, September 12). Thai Politics and Coup Culture. OWP. Retrieved from https://theowp.org/thai-politics-and-coup-culture/
Escaleras, M., & Register, C. A. (2011). Natural Disasters and Foreign Direct Investment. Land Economics, 87(2), 346-363. http://doi.org/10.3368/le.87.2.346
ESCAP. (2020, November 19). Promoting Inward and Outward Foreign Direct Investment in the Post-Coronavirus-disease Era. Retrieved from https://www.unescap.org/sites/default/files/CTI7_2_item%203_E%20%281%29.pdf
Goswami, G. G., & Haider, S. (2014). Does Political Risk Deter FDI Inflow? An Analytical Approach Using Panel Data and Factor Analysis. Journal of Economic Studies, 41(2), 233-252. https://doi.org/10.1108/JES-03-2012-0041
Hoang, H. H. (2012). Foreign Direct Investment in Southeast Asia: Determinants and Spatial Distribution (Working Paper Series No. 2012/30). Vietnam: Development and Policies Research Center (DEPOCEN). Retrieved from http://depocenwp.org/upload/pubs/30-Foreign%20Direct%20investment%20in%20Southeast%20Asia.pdf
Hussain, Z. (2014, June 1). Can Political Stability Hurt Economic Growth? World Bank Blogs. Retrieved from https://blogs.worldbank.org/endpovertyinsouthasia/can-political-stability-hurt-economic-growth
Khadaroo, A. J., & Seetanah, B. (2010). Transport Infrastructure and Foreign Direct Investment. Journal of International Development, 22(1), 103-123. https://doi.org/10.1002/jid.1506
Khan, M. M., & Akbar, M. I. (2013). The Impact of Political Risk on Foreign Direct Investment (MPRA Paper No. 47283). Retrieved from https://mpra.ub.uni-muenchen.de/47283/
Kok, R., & Ersoy, B. A (2009). Analyses of FDI Determinants in Developing Countries. International Journal of Social Economics, 36(1/2), 105-123. https://doi.org/10.1108/03068290910921226
Kumar, N. (2006). Infrastructure Availability, Foreign Direct Investment Inflows and their Export-orientation: A Cross-country Exploration. The Indian Economic Journal, 54(1), 125-144. https://doi.org/10.1177/0019466220060108
Kurlantzick, J. (2013, December 19). Thailand’s Political Crisis—Not so Unique. Council on Foreign Relationship. Retrieved from https://www.cfr.org/blog/thailands-political-crisis-not-so-unique
Li, Q. (2006). Chapter 11 Political Violence and Foreign Direct Investment. In M. Fratianni (Ed.), Regional Economic Integration, Research in Global Strategic Management, Vol. 12 (pp. 225-249). Bingley: Emerald Group Publishing. https://doi.org/10.1016/S1064-4857(06)12011-2
Liargovas, P. G., & Skandalis, K. S. (2011). Foreign Direct Investment and Trade Openness: The Case of Developing Economies. Social Indicators Research, 106, 323-331. https://doi.org/10.1007/s11205-011-9806-9
Mollick, A. V., Ramos-Duran, R., & Silva-Ochoa, E. (2006). Infrastructure and FDI Inflows into Mexico: A Panel Data Approach. Global Economy Journal, 6(1). https://doi.org/10.2202/1524-5861.1094
Moosa, I. A. (2002). Foreign Direct Investment: Theory, Evidence and Practice. New York: Palgrave Macmillan. http://doi.org/10.1057/9781403907493
Multilateral Investment Guarantee Agency. (2011). World Investment and Political Risk 2010. Washington, DC: World Bank. Retrieved from https://openknowledge.worldbank.org/handle/10986/2538
Nigh, D. (1986). Political Events and the Foreign Direct Investment Decision: An Empirical Examination. Managerial and Decision Economics, 7(2), 99-106. https://doi.org/10.1002/mde.4090070205
Ozbozkurt, O. B., & Satrovic, E. (2018). Causal Relationship between Foreign Direct Investments and Macro-level Political Stability in Turkey. In M. B. Beros, N. Recker, & M. Kozina (Eds.), 27th International Scientific Conference on Economic and Social Development, Rome, 1-2 March 2018 (pp. 196-205). Retrieved from https://www.academia.edu/36096239/Causal_Relationship_between_Foreign_Direct_Investments_and_Macro_Level_Political_Stability_in_Turkey
Rehman, C. A., Ilyas, M., Alam, H. M., & Akram, M. (2011). The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan. International Journal of Business and Management, 6(5), 268-276. http://doi.org/10.5539/IJBM.V6N5P268
Sekkat, K., & Veganzones-Varoudakis, M.-A. (2007). Openness, Investment Climate, and FDI in Developing Countries. Review of Development Economics, 11(4), 607-620. https://doi.org/10.1111/j.1467-9361.2007.00426.x
Sethapramote, Y. (2020, November 10). Impact of Political Risk to FDI. Post Today. Retrieved from https://www.posttoday.com/finance-stock/columnist/637602
Thai Embassy. (2021). COVID-19 Guide for Travelers to and in Thailand. Retrieved from https://www.thaiembassy.com/travel-to-thailand/covid-19-guide-for-travelers-in-thailand
Thailand Board of Investment. (2020). Thailand’s E & E, Food, Auto and Medical Sectors Lead Jan-Sep Rise in Investment, BOI Applications Data Shows. Retrieved from https://www.boi.go.th/index.php?page=press_releases_detail&topic_id=127090
Thailand Board of Investment. (2021a, March 31). Thailand’s Advantages. Retrieved from https://www.boi.go.th/index.php?page=thailand_advantages
Thailand Board of Investment. (2021b, September 9). Thailand’s Rankings. Retrieved from https://www.boi.go.th/index.php?page=thailand_rankings
Thansettakij. (2020, July 26). Thailand Watching “Japan” Encourage 15 Companies Move to “Vietnam”. Retrieved from https://www.thansettakij.com/content/world/443359
TNNThailand. (2019, June 20). ‘Sharp-LG’ were going to Relocate from Thailand and Vietnam to Indonesia. Retrieved from https://www.tnnthailand.com/news/world/10465/
UNCTAD. (2006). World Investment Report 2006. Switzerland: United Nations Publications. Retrieved from https://unctad.org/system/files/official-document/wir2006_en.pdf
UNCTAD. (2020). World Investment Report 2020. New York: United Nations Publications. Retrieved from https://unctad.org/system/files/official-document/wir2020_en.pdf
Walsh, J. P., & Yu, J. (2010). Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach (IMF Working Paper No. 10/187). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1662260
Witte, C. T., Burger, M. J., Ianchovichina, E. I., & Pennings, E. (2016). Dodging Bullets: The Heterogeneous Effect of Political Violence on Greenfield FDI (Policy Research Working Papers No. 7914). Washington, DC: World Bank. Retrieved from https://openknowledge.worldbank.org/handle/10986/25813
World Bank. (n.d.). GCI 4.0: Global Competitiveness Index 4.0. Retrieved from https://govdata360.worldbank.org/indicators/ha03bec65?country=BRA&indicator=41472&viz=line_chart&years=2017,2019
Section
Research Articles
##plugins.themes.bootstrap3.article.details##
How to Cite
PHUDITSHINNAPATRA, Vilasinee; TUNGBENCHASIRIKUL, Sahanon; SETHJINDA, Thananporn.
Factors Affecting the Foreign Direct Investment in Thailand: Do Political Events Play a Role?.
Journal of Community Development Research (Humanities and Social Sciences), [S.l.], v. 15, n. 4, p. 14-28, oct. 2022.
ISSN 2985-0231.
Available at: <https://www.journal.nu.ac.th/JCDR/article/view/Vol-15-No-4-2022-14-28>. Date accessed: 26 apr. 2024.
doi: https://doi.org/10.14456/jcdr-hs.2022.32.