Tài liệu Sustainable Globalization and Emerging Economies: The Impact of Foreign Direct Investment in Thailan

Sustainable Globalization and Emerging Economies: The Impact of Foreign Direct Investment in Thailand


Werner Soontiens Siriporn Haemputchayakul
Curtin University of Technology, Australia


Abstract


Foreign direct investment is often considered as simultaneously being one of the consequences and drivers of
globalisation. In the process of opening up economies to participate in some of the positive impacts of globalisation,
countries position themselves in respect of attracting foreign direct investment. In addition, the ability to attract
foreign direct investment and its positive impact in growing economies is valued as an integral part of the road to
successful economic growth and development.
The Asian economic crisis has highlighted the vulnerability and volatility of emerging economies especially
in the financial sector and, in the case of Thailand, directly linked to foreign direct investment. The question that
prevails is to what extent does foreign direct investment support or sabotage globalisation attempts by countries.
This paper considers the role and impact that foreign direct investment (FDI) has had in Thailand over the
past decade. The first section identifies the nature and impact of FDI in general, followed by an explanation of the
underlying reasons for the flow of funds. The nature and impact of FDI defines the concept and summarizes the
consequences, both positive and negative, towards the recipient country. Different theories explaining why FDI takes
place are also discussed here.
The second section briefly considers foreign direct investment in Asia. This section looks at tendencies in
the flow of foreign direct investment in terms of target markets and industries. The role of FDI in Asia is analysed
over the 1990 to 1998 period to show its behaviour before and during the Asian financial crisis.
The third section analyses the impact of foreign direct investment in Thailand by pointing out its nature and
origin in terms of the major sources of FDI and the industries most affected by them. Also included in this part is the
relationship between foreign direct investment and the export performance of Thailand and the transfer of
technology impact thereof.
The last section discusses the current situation of foreign direct investment in Thailand and anticipates
future trends. This is done by assessing the impact on FDI of the recent change in political leadership and its
redefining of priorities. A brief comparison to other countries in the region and possible future trends conclude the
paper.


The Nature and Impact of Foreign Direct Investment (FDI)


When considering cross border investment, it is important to distinguish between FDI, Foreign Portfolio
Investment (FPI) and other types of foreign investment. The World Trade Organization (WTO) indicates that
FDI occurs when an investor based in one country (the home country) acquires an asset in another country (the
host country) with the intent to manage that asset (The South Centre, 1997: 1). Interpreting this definition from
a more specific perspective means that ownership of 10 percent or more of ordinary shares or voting power
represents a sufficient share to give the foreign investor a significant influence on the management of the
enterprise (Framework for the Collection, Compilation and Dissemination of Foreign Direct Investment
Statistics, 2000). In addition, FDI is considered to comprise three possible components; new equity from the
parent company to the subsidiary; reinvested profits of the subsidiary; and long and short term net loans from
the parent to the subsidiary (Salvatore, 2001).
Foreign Portfolio Investment (FPI), in turn, entails passive holdings of securities and other financial
assets, which do not reflect active management or control of the security's issuer. FPI is positively influenced by
high rates of return and reduction of risk through geographic diversification. The management dimension is
what distinguishes FDI from FPI in foreign stocks, bonds and other financial instruments (Krugman and
Obstfeld, 1997; Yarbrough and Yarbrough, 1997; Salvatore, 2001).
As a positive, FDI brings capital flows that improve the balance of payments, and other economic
benefits such as employment, export markets, technology, management skill enhancement and spillover effects
(Klein, Aaron and Hadjimichael, 2001). Potential negative consequences of FDI include inappropriate
technology transfer and a deteriorating balance of payments in the longer run (Kumar, 1998; Chen, 2000).


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