PRIVATE DIRECT FOREIGN INVESTMENT AND THAI ECONOMY (SIAM, ASEAN, ASIA)

The main objective of this study is to analyze the causes and effects of private direct foreign investment in Thailand. Regression analysis is used to analyze the variation in the foreign firms' share in domestic sales and production, and the variation in the share of foreign affiliate production in total foreign involvement in Thailand's manufacturing industries. The findings show that the technological advantage possessed by foreign firms over their local competitors is the major factor which enables the firms to have a relatively high share in domestic sales and production in Thailand's manufacturing industries. Import tariff and relatively low wage rates in Thailand appear to have a significant influence on the foreign firms' decision to substitute foreign affiliate production in Thailand for exporting to the country. Moreover, there is evidence of oligopolistic reaction behavior among the foreign firms who invested in Thailand's manufacturing industries, at both the national and international levels.; The effects of direct foreign investment on income and the balance of payments of Thailand are computed on a firm-by-firm basis by applying a modified project appraisal method. The effects are calculated under different alternative situations: (1) the product is imported, (2) foreign capital in that particular firm is totally replaced by local capital, and (3) the product in produced by a local firm. Although most of the foreign affiliates in the sample show a positive contribution to the net national income of the Thai economy under the first alternative situation, a large proportion of these affiliates are undesirable in terms of net social income effects. The main factors determining the negative social income effects are an excessively high rate of protection and the opportunity cost of local capital borrowed by foreign affiliates. There is evidence that it would be worthwhile for Thailand either to have the foreign capital in some foreign affiliates replaced by local capital or to have the affiliates themselves replaced by selected local firms.; The majority of foreign affiliates in the sample show positive contribution to the balance of payments of Thailand in most cases. They tend to fare better than local firms. Any attempt to replace foreign capital with local capital or foreign affiliates with local firms would cost the country dearly in terms of the amount of foreign exchange sacrificed.