The impacts of China’s FDI on employment in Thailand’s industrial sector. A dynamic VAR (vector auto regression) approach
| Date | 01 February 2016 |
| Published date | 01 February 2016 |
| DOI | https://doi.org/10.1108/JCEFTS-09-2015-0023 |
| Pages | 60-84 |
| Author | Mathavee Keorite,Mohamed Moubarak |
| Subject Matter | Economics,International economics |
The impacts of China’s FDI on
employment in Thailand’s
industrial sector
A dynamic VAR (vector auto
regression) approach
Mathavee Keorite
School of Economics, Xiamen University, Xiamen, China, and
Mohamed Moubarak
Faculty Saint-Jean, University of Alberta, Edmonton, Canada
Abstract
Purpose – This study aims to analyze the effect of inward foreign direct investment (FDI) on new job
creation. This study pays attention to factors interrelated to China’s FDI by using the case of Thailand.
Design/methodology/approach – Using time series data from 2001 to 2014, this paper explores the
driving forces and reduction potentials of employment in Thailand’s industrial sector with
consideration for dynamic changes within the vector autoregression model.
Findings – The results show that government expenditure plays a dominant role in increasing
employment in Thailand’s industrial sector and exports plays a dominant role in decreasing
employment in Thailand’s industrial sector. All variables are co-integrated and the analysis of the
impulse–response function also turns out to be synchronous. Furthermore, in the short term, exports are
more critical than China’s FDI in industrial sectors in reduction potentials of employment in Thailand’s
industrial.
Practical/implications – Policies should be devised to increase skilled labour and improve the
equality of infrastructure in the country to attract more FDI into the economy and for quick adjustment
purposes in case of shock to the system.
Originality/value – The paper uncovers some important factors inuencing employment in
Thailand’s industrial sector under study and provides a guide-map for policymakers.
Keywords Employment, Thailand, Export, Manufacturing, China’s FDI, Industrial sector
Paper type Research paper
1. Introduction
Foreign direct investment (FDI), a crucial motivation in worldwide capital ows, is the
outcome of corporate strategies to maximize prots in worldwide market competition
given the derestricted institutional changes (Sun et al., 2002), motivated by resource- and
market-seeking strategies (Dunning, 1997). FDI is investment usually involving a
long-term relation and reecting a lasting interest in the host country (Razin and Sadka,
2007). Thus, FDI delivers “a package of assets and intermediate products” that includes
The authors would like to thank the anonymous reviewers for their constructive comments. The
early idea of this paper was presented at the 4th Chinese-Thai Strategic Research Seminar,
Xiamen, PR China, in 2015.
The current issue and full text archive of this journal is available on Emerald Insight at:
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JCEFTS
9,1
60
Journalof Chinese Economic and
ForeignTrade Studies
Vol.9 No. 1, 2016
pp.60-84
©Emerald Group Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-09-2015-0023
capital, technology, management skills, access to markets and entrepreneurship
(Dunning, 1993). The capital invested in host countries is used for production and can
involve the transfer of new technologies and management skills from foreign
investors[1]. FDI to East and Southeast Asia declined as a result of falls in major
economies in the region, including those of China, Hong Kong (China), Malaysia and the
Republic of Korea, the report notes. The decline was both in cross-border mergers and
acquisitions and in Green eld investments – meaning investments in industries or
sectors that are new to the recipient countries. China continues to be the leading FDI
recipient in the region, as well as in the developing world. FDI inows to the country
dropped by only 2 per cent in 2012, remaining high at $121 billion despite strong
downward pressure on FDI in manufacturing caused by rising production costs,
weakening export markets and relocation of foreign rms to lower-income countries, the
report says. As labour-intensive industries have experienced a considerable wave of
relocation, the Chinese manufacturing sector as a whole has been upgrading, the World
Investment Report notes. Both domestic and foreign investments are increasingly
targeting high-technology industries, such as advanced electronics components. In
addition, an increased number of foreign-invested research and development (R&D)
centres – about 1,800 by the end of 2012 – demonstrate that FDI has helped China enter
into more advanced activities along global value chains.
The ten-member states of the Association of Southeast Asian Nations (ASEAN) saw
an overall 2 per cent increase in FDI inows in 2012, partly as the result of a large
amount of inows (up by 1.3 per cent up to $57 billion) to Singapore, the sub-region’s
leading FDI target.
Meanwhile, relatively low-income countries in Southeast Asia seem to be a bright
spot for FDI, the report notes. Inows to Cambodia, Indonesia, Myanmar, the
Philippines and Vietnam continued to grow in 2012. These countries have received an
increasing amount of FDI driven by the wish of investors to reduce costs for
labour-intensive manufacturing, to harvest mineral resources and to participate in
infrastructure projects. For example, Chinese investment in infrastructure has been
increasing in countries such as Indonesia and the Lao People’s Democratic Republic,
providing new dynamism to intraregional FDI in infrastructure.
At present, Thailand plays an important role in manufacturing and exporting of
Chinese products to the ASEAN region. China accounted to only 0.78 per cent of the total
Thai inward FDI value in 2007. This percentage dramatically increased to 5.29 per cent
in 2012 (BOT, 2013). China expanded its outward FDI in Thailand by 543.69 per cent
over the past ve years. Following the trend of the growth, China will play an
increasingly important role in the inward FDI of Thailand. On the other hand, inward
FDI has been an important driver of Thai economic development. Inward FDI once
reached US$7.50 billion and therefore assisted in the process of economic recovery from
Asian nancial crisis in 1998 (UNCTAD, 2013). The regional integration of the ASEAN
Economic Community will bring both opportunities and challenges to the ASEAN
countries. The importance of FDI as a source of economic growth engine has
been recognized by many; thus, there is intense competition among the ASEAN
countries in attracting FDI. Therefore, exploring the impact of China’s FDI on
employment will help the authorities to understand the trend of Chinese inward FDI, to
understand its impact on employment and to retain the existing inows, as well as to
persuade the remaining to invest. In addition, understanding the main driving forces of
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Impacts of
China’s FDI
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