The relative importance of trade verses FDI-led economic growth in Thailand

This chapter investigates the relative strength of the contributions of trade
openness and FDI inflows towards economic growth of Thailand, taking account
of the importance of human capital and other conditioning factors as a source of
technology transfer in facilitating growth. Using Granger causality tests conducted within a vector-error-correction framework, the authors find significant evidence of the complementarities between domestic investment and trade openness, providing support for import-led growth. In contrast, direct support for FDI-led growth is relatively weak, which implies that trade openness has played a more significant role than FDI in influencing Thai economic growth. However, the results reveal a subtle role for technology transfer through the complementary effect of trade on FDI, and FDI on government expenditure, which henceforth influences human capital development with spillovers into domestic investment and growth. This leads us to argue that there is a potential role for FDI interacting with human capital in influencing the future development of the Thai economy, given its active policy of FDI promotion over the past decade.