UNIVERSITY OF FINANCE – MARKETING

FACULTY OF COMMERCE
_______________________
INDIVIDUAL ASSIGNMENT
INTERNATIONAL ECONOMICS

THE IMPACT OF FOREIGN DIRECT

INVESTMENT ON ECONOMIC GROWTH:
THE CASE OF THAILAND

VÕ THANH THÚY NGA

ID: 2121013265 CLASS: IP_21DKQ03
INSTRUCTOR: PhD. LÊ THỊ GIANG

Ho Chi Minh City: 08/2024

 INTRODUCTION
Foreign Direct Investment (FDI) has become a cornerstone of economic development
strategies globally, and Thailand is no exception. As a rapidly growing economy in Southeast
Asia, Thailand has leveraged FDI to fuel its economic growth, modernize its industries, and
integrate itself more deeply into the global economy. This report examines the multifaceted
impact of FDI on Thailand’s economy, exploring both the positive contributions and the
challenges it poses.
The report is structured into seven chapters. Chapter 1 provides an overview of
Thailand’s economic landscape and its attractiveness as an investment destination. Chapter 2
delves into the dynamics of FDI inflows, highlighting key sectors and sources of investment.
Chapter 3 analyzes the strategic significance of FDI in Thailand’s economic development.
Chapters 4 and 5 focus on specific impacts and case studies of FDI in various sectors, while
Chapter 6 provides a comprehensive assessment of the overall impact of FDI, categorizing its
effects into positive and negative dimensions. Finally, Chapter 7 offers policy
recommendations and strategic solutions to maximize the benefits of FDI while mitigating its
adverse effects.
Through this structured analysis, the report aims to provide a nuanced understanding
of how FDI shapes Thailand’s economic trajectory and to offer actionable insights for
policymakers and stakeholders to optimize FDI’s role in fostering sustainable and inclusive
economic growth.

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Table of Contents
INTRODUCTION.................................................................................................................................2
LIST OF FIGURE................................................................................................................................5
LIST OF CHART..................................................................................................................................5
Chart 4. 1 Foreign Direct Investment Value Trend in Thailand from 1956 to 2021 13....5
Chapter 1: Definitions and Concepts................................................................................................6
1.1 Economic Growth................................................................................................................................. 6
1.2 Foreign Direct Investment (FDI)....................................................................................................... 8
Chapter 2: The Role of FDI in Economic Growth.........................................................................9
Chapter 3: Overview of Thailand.....................................................................................................10
3.1 Brief Introduction of Thailand........................................................................................................ 10
3.2 Economic Sectors................................................................................................................................ 10
3.3 Historical Economic Development..................................................................................................11
3.4 Recent Economic Challenges........................................................................................................... 11
3.5 Social and Economic Inequality...................................................................................................... 12
3.6 Future Economic Outlook................................................................................................................ 12
3.7 Human Capital and Aging Population.......................................................................................... 12
3.8 Environmental Challenges............................................................................................................... 13
Chapter 4: FDI in Thailand..............................................................................................................13
4.1 Historical Overview of FDI Inflows................................................................................................13
4.2 Major Sources of FDI........................................................................................................................ 14
4.3 Government Policies and Incentives.............................................................................................. 15
4.4 Recent FDI Statistics.......................................................................................................................... 15
4.5 Key Sectors Receiving FDI............................................................................................................... 16
4.6 Notable FDI Projects and Their Impacts......................................................................................17
Chapter 5: Economic Development in Thailand..........................................................................19
5.1 Thailand’s Economic Growth.......................................................................................................... 19
5.2 Structural Changes in Thailand’s Economy................................................................................ 20
5.3 Key Indicators of Thailand’s Economic Growth.........................................................................21
Chapter 6: Impact of FDI on Thailand’s Economy....................................................................22
6.1 Positive Impacts.................................................................................................................................. 22

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 6.2 Negative Impacts................................................................................................................................ 24
Chapter 7: Solutions to Maximize Positive Impact and Minimize Negative Impact............24
7.1 Policy Recommendations.................................................................................................................. 24
7.2 Incentive Programs............................................................................................................................ 25
7.3 Collaboration and Partnerships...................................................................................................... 25
CONCLUSION....................................................................................................................................27
REFERENCE......................................................................................................................................28

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 LIST OF FIGURE
Figure 1. 1 Generating Economic Growth 7
Figure 5. 1 Varieties of structural transformation in Thailand, 1964–2011 20

LIST OF CHART

Chart 4. 1 Foreign Direct Investment Value Trend in

Thailand from 1956 to 2021 13

Chart 4. 2 Main Invested Sector in Thailand 17

Chart 5. 1 Thailand’s GDP Growth from 1996 to 2021 19

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Chapter 1: Definitions and Concepts
1.1 Economic Growth
Economic growth is an increase in the production of economic goods and services in
one period of time compared with a previous period. It can be measured in nominal or real
terms. Traditionally, aggregate economic growth is measured in terms of gross national
product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes
used.
In simplest terms, economic growth refers to an increase in aggregate production in an
economy, which generally manifests as a rise in national income. Often, aggregate gains in
production correlate with increased average marginal productivity. That leads to an increase
in incomes, inspiring customers to open up their wallets and buy more and driving a higher
material quality of life and standard of living.
In economics, growth is commonly modeled as a function of physical capital, human
capital, labor force, and technology. Increasing the quantity or quality of the working-age
population, the tools that they have to work with, and the recipes that they have available to
combine labor, capital, and raw materials will lead to increased economic output.
The economy moves through different periods of activity. This movement is called
the “business cycle”. It consists of four phases:
1. Expansion: During this phase, employment, income, industrial production, and sales
all increase, and there is a rising real GDP.
2. Peak: This is when an economic expansion hits its ceiling. It is in effect a turning
point.
3. Contraction: During this phase, the elements of an expansion all begin to decrease. It
becomes a recession when a significant decline in economic activity spreads across
the economy.
4. Trough: This is when an economic contraction hits its nadir.
A single business cycle is dated from peak to peak or trough to trough. Such cycles
generally are not regular in length, and there can be a period of contraction during an
expansion and vice versa.
● How to Generate Economic Growth

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 Figure 1. 1 Generating Economic Growth

Source: Image by Sabrina Jiang © Investopedia 2020

Economic growth is dependent on the following four contributory areas:
1. Increase in Physical Capital Goods
The first is an increase in the amount of physical capital goods in the economy.
Adding capital to the economy tends to increase the productivity of labor. Newer, better, and
more tools mean that workers can produce more output per time period.
For a simple example, a fisherman with a net will catch more fish per hour than a
fisherman with a rod. However, two things are critical to this process.
Someone in the economy must first engage in some form of saving in order to free up
the resources to create the new capital. In addition, the new capital must be of the right type,
in the right place, and activated at the right time for workers to actually use it productively.
2. Improvements in Technology
A second method of producing economic growth is through technological
improvements. An example of this is the invention of gasoline fuel. Prior to the discovery of
its energy-generating power, the economic value of petroleum was relatively low. This
changed when the use of gasoline proved a more productive method of transporting goods.
Improved technology allows workers to produce more output with the same stock of
capital goods by combining them in novel ways that are more productive. Like capital
growth, the rate of technical growth is highly dependent on the rate of savings and
investment, as they are necessary to engage in research and development.
3. Growth of the Labor Force
Another way to generate economic growth is to grow the labor force. All else being
equal, more workers generate more economic goods and services.

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 During the 19th century, a portion of the robust U.S. economic growth was due to a
high influx of cheap, productive immigrant labor. However, as with capital-driven growth,
there are some key conditions to this process.
Increasing the labor force necessarily increases the amount of output that must be
consumed in order to provide for the basic subsistence of the new workers, so the new
workers need to be at least productive enough to offset this and not be net consumers.
Also, just like additions to capital, it is important for the right type of workers to flow
to the right jobs in the right places in combination with the right types of complementary
capital goods in order to realize their productive potential.
4. Increase Human Capital
The last method is to increase human capital. This means laborers become more
accomplished at their crafts, raising their productivity through skills training, trial and error,
or simply more practice. Savings, investment, and specialization are the most consistent and
easily controlled methods.
Human capital in this context can also refer to social and institutional capital.
Behavioral tendencies toward higher social trust and reciprocity, along with political or
economic innovations such as improved protections for property rights, are types of human
capital that can increase the productivity of the economy.

1.2 Foreign Direct Investment (FDI)

The term foreign direct investment (FDI) refers to an ownership stake in a foreign
company or project made by an investor, company, or government from another country. FDI
is generally used to describe a business decision to acquire a substantial stake in a foreign
business or to buy it outright to expand operations to a new region. The term is usually not
used to describe a stock investment in a foreign company alone. FDI is a key element in
international economic integration because it creates stable and long-lasting links between
economies.
Foreign direct investments can be made in a variety of ways, including opening a
subsidiary or associate company in a foreign country, acquiring a controlling interest in an
existing foreign company, or by means of a merger or joint venture with a foreign company.
The threshold for an FDI that establishes a controlling interest, per guidelines
established by the Organisation for Economic Co-operation and Development (OECD), is a
minimum 10% ownership stake in a foreign-based company. That definition is flexible. There
are instances in which effective controlling interest in a firm can be established by acquiring
less than 10% of the company’s voting shares.
● Types of Foreign Direct Investment
Foreign direct investments are commonly categorized as horizontal, vertical, or
conglomerate.
1. With a horizontal FDI, a company establishes the same type of business operation in a
foreign country as it operates in its home country. A U.S.-based cellphone provider
buying a chain of phone stores in China is an example.

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 2. In a vertical FDI, a business acquires a complementary business in another country.
For example, a U.S. manufacturer might acquire an interest in a foreign company that
supplies it with the raw materials it needs.
3. In a conglomerate FDI, a company invests in a foreign business that is unrelated to its
core business. Because the investing company has no prior experience in the foreign
company’s area of expertise, this often takes the form of a joint venture.
The advantages and disadvantages of FDI are that FDI can foster and maintain economic
growth, in both the recipient country and the country making the investment. On one hand,
developing countries have encouraged FDI as a means of financing the construction of new
infrastructure and the creation of jobs for their local workers. On the other hand,
multinational companies benefit from FDI as a means of expanding their footprints into
international markets. A disadvantage of FDI, however, is that it involves the regulation and
oversight of multiple governments, leading to a higher level of political risk.

Chapter 2: The Role of FDI in Economic Growth

Policymakers in both developing and advanced economies agree that foreign direct
investment (FDI) is a key element of a successful development strategy. The European
Commission states: “FDI is a driver of competitiveness and economic development”. In the
midst of the COVID-19 pandemic, the World Bank described FDI as key to crisis recovery.
This sentiment is not new – an International Monetary Fund article from 1999 noted,
“Recognizing that FDI can contribute to economic development, all governments want to
attract it.”
The enthusiasm of policymakers is somewhat in contrast with the academic literature.
While a few papers exist that find a positive link between FDI and economic growth, there is
now a consensus that FDI flows alone are not enough and that complementary inputs such as
human capital and financial depth play a central role in the link between FDI and economic
growth.
The report “THE ROLE OF FOREIGN DIRECT INVESTMENT IN ECONOMIC
GROWTH” by Eatzaz Ahmad and Anishamdani (2003) have stated that:
“The effect of FDI on real GDP is also found to be positive though the relationship is not
significant in the fixed effects model. The results also show that the effect of FDI on GDP is
estimated to be higher than the effect of domestic investment in the OLS and random-effects
models, while the effects of the two types of investment are almost the same according to the
fixed effects model. Therefore, whether FDI is a more important factor in determining the
growth process than domestic private investment depends on which particular model is
considered more realistic. The statistical test on the restriction that all the fixed effects are
equal to each other is rejected at 1% level, suggesting that the OLS model is rejected in
favour of the fixed effect model. The choice between fixed and random effects models
depends on whether the differences in growth rates of real output among the sampled
countries are deterministic or random. Since the choice of countries considered for the
analysis has been restricted by the requirement that they are less developed and sufficiently
long time series data are available for each individual country, our sample is non-random.”

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 The impact of foreign direct investment (FDI) on economic growth is a complex issue
and there is not always a clear and direct relationship. Although policymakers in both
developed and developing economies consider FDI as an important factor in successful
development strategies, academic research has presented different views. Some studies show
that FDI has a positive impact on economic growth, but in general, FDI is not the only and
most important factor. As Eatzaz Ahmad and Anishamdani (2003) pointed out, the impact of
FDI on GDP is positive, but insignificant in some analytical models. This suggests that the
impact of FDI may not be as strong as some optimistic views have suggested. In addition,
additional factors such as human capital and financial depth also play an important role in the
connection between FDI and economic growth.

Chapter 3: Overview of Thailand

3.1 Brief Introduction of Thailand
Thailand, officially known as the Kingdom of Thailand, is a nation located in
Southeast Asia, sharing borders with Myanmar, Laos, Cambodia, and Malaysia. With a
geographical area of 513,120 square kilometers and a population exceeding 69 million,
Thailand is known for its strategic location and diverse landscapes, ranging from
mountainous regions in the north to tropical beaches in the south. This geographical diversity
has played a significant role in making Thailand a major economic hub in the region.

3.2 Economic Sectors

Thailand’s economy is primarily driven by three sectors: manufacturing, agriculture,
and services. Manufacturing is the largest contributor to the country’s GDP, particularly in
industries such as automotive, electronics, and petrochemicals. The automotive industry, for
example, has made Thailand the “Detroit of Asia”, with the country being one of the world’s
largest car exporters. Electronics manufacturing is another crucial industry, with many global
tech companies establishing their production bases in Thailand due to its skilled labor force
and favorable investment policies.
Agriculture, while contributing a smaller share to the GDP, remains significant,
especially in terms of employment. Thailand is one of the world’s leading exporters of rice
and rubber, and agriculture supports the livelihoods of millions of people, particularly in rural
areas. The agricultural sector’s contribution to the economy has decreased over the years, but
it remains a crucial part of Thailand’s economic and social fabric.
The services sector, particularly tourism, plays an essential role in Thailand’s
economy. Tourism has been a significant driver of economic growth, contributing
substantially to foreign exchange earnings. Thailand is a top destination for international
tourists, drawn by its rich cultural heritage, vibrant cities, and beautiful landscapes. Before
the COVID-19 pandemic, tourism accounted for about 20% of Thailand’s GDP, with millions
of visitors flocking to the country each year.

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 3.3 Historical Economic Development
Thailand has undergone a remarkable transformation over the past several decades,
evolving from a low-income, agriculture-based economy to an upper-middle-income nation
with a diversified economic structure. This transformation began in earnest in the 1960s,
when the country embraced industrialization and export-led growth. The Thai government
implemented policies that attracted foreign investment, improved infrastructure, and
supported the development of key industries.
From 1960 to 1996, Thailand’s economy grew at an impressive average annual rate of
7.5%, one of the highest in the world during that period. This rapid growth was driven by
manufacturing and exports, particularly in sectors such as textiles, electronics, and
automotive. The country became a significant player in global supply chains, particularly in
Asia, and foreign direct investment (FDI) played a crucial role in this process.
The Asian Financial Crisis of 1997-1998 was a major turning point for Thailand. The
crisis, which began in Thailand with the devaluation of the baht, led to severe economic
contraction and social dislocation. However, the country managed to recover relatively
quickly, thanks to structural reforms and assistance from international organizations like the
International Monetary Fund (IMF) and the World Bank. During the recovery phase from
1999 to 2005, Thailand’s economy grew at an average rate of 5% per year, although this was
slower than the pre-crisis period.

3.4 Recent Economic Challenges

In recent years, Thailand’s economic growth has slowed due to several structural
challenges. One of the most significant issues is stagnating productivity. Total Factor
Productivity (TFP), which measures the efficiency of all inputs in a production process, grew
by 3.6% per annum during the early 2000s but has since slowed to just 1.3% from 2009 to
2017. This decline in productivity growth has been a major concern for policymakers, as it
limits the country’s potential for future economic expansion.
Another challenge has been the decline in private investment, which fell from more
than 40% of GDP in 1997 to just 16.9% in 2019. This decline is partly due to the saturation
of traditional industries and the need for new growth drivers. Foreign direct investment (FDI)
flows have also shown signs of stagnation, with Thailand facing increasing competition from
neighboring countries like Vietnam and Indonesia, which offer similar advantages but with
lower labor costs and newer infrastructure.
The COVID-19 pandemic has exacerbated these existing challenges. In 2020,
Thailand’s economy contracted by 6.1%, the sharpest decline in over two decades. The
pandemic severely impacted tourism, one of Thailand’s most important economic sectors,
leading to widespread job losses and a significant drop in income for millions of Thais. A
World Bank survey conducted between April and June 2021 found that over 70% of
households experienced a decline in income since March 2020, with the most vulnerable
groups, including informal workers and small business owners, being the hardest hit.

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 3.5 Social and Economic Inequality
Despite the overall progress in economic development, Thailand continues to struggle
with significant levels of inequality. Income inequality remains high, with a Gini coefficient
of 43.3% in 2021, the highest in the East Asia and Pacific region. The concentration of
wealth is particularly stark, with over half of the country’s wealth held by the richest 10% of
the population. This inequality is not just limited to income but also extends to access to
education, healthcare, and other essential services.
Poverty reduction in Thailand has slowed in recent years. While the country made
remarkable progress in reducing poverty from 58% in 1990 to 6.8% in 2020, the rate of
reduction has decreased, and poverty has even increased in certain years, such as 2016, 2018,
and 2020. The COVID-19 pandemic further exacerbated poverty, with rural areas,
particularly those reliant on agriculture, being the most affected. In 2020, the poverty rate in
rural areas was more than three percentage points higher than in urban areas, and the number
of rural poor outnumbered the urban poor by almost 2.3 million.

3.6 Future Economic Outlook

Looking ahead, Thailand’s economic outlook is mixed. According to the World
Bank’s East Asia and Pacific Economic Update April 2024, Thailand’s economy is projected
to grow by 2.8% in 2024, up from 1.9% in 2023. This growth is expected to be driven by a
recovery in tourism and increased private consumption. However, the outlook remains
weaker than previously projected due to dimmer prospects for exports and public investment.
Goods exports are expected to grow, supported by favorable global trade conditions, despite
the slowdown in China, one of Thailand’s key trading partners. Tourism, which is gradually
recovering from the pandemic, is projected to return to pre-pandemic levels by mid-2025.
Thailand’s fiscal response to the COVID-19 pandemic played a critical role in
mitigating the economic impact on households. However, poverty is expected to rise slightly,
from 6.3% in 2021 to 6.6% in 2022, as government relief measures are phased out and
inflation remains elevated. The government faces the challenge of balancing the need for
continued social assistance with the necessity of maintaining fiscal sustainability.

3.7 Human Capital and Aging Population

Thailand’s Human Capital Index (HCI) for 2020 stands at 0.61, indicating that the
future productivity of a child born today will be 39% below what could have been achieved
with complete education and full health. The country has made significant strides in
improving access to healthcare, with nearly universal health coverage, and in reducing child
malnutrition. However, the quality of education remains a critical issue. While Thailand
ranks high in terms of expected years of schooling, the quality of education, as measured by
harmonized test scores, is low. This education quality gap poses a significant challenge to
Thailand’s long-term development prospects, as it limits the ability of the workforce to adapt
to the demands of a rapidly changing global economy.
The aging population is another major challenge for Thailand. The country is aging
rapidly, with the proportion of the population aged 65 and over expected to rise significantly
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in the coming decades. This demographic shift will increase the demand for public spending
on pensions, healthcare, and long-term care. The IMF estimates that public expenditure on
healthcare will rise from 2.9% of GDP in 2017 to 4.9% of GDP by 2060 due to aging.
Without offsetting measures, such as pension reform or increased labor force participation
among older adults, these rising costs could strain public finances and constrain economic
growth.

3.8 Environmental Challenges

Thailand’s rapid economic growth has come at a significant environmental cost. The
country is a major contributor to marine plastic pollution, with large amounts of plastic waste
entering rivers and coastal areas each year. In response, the Thai government has launched
the National Action Plan on Marine Plastic Debris (2023-2027) and the Bio-Circular-Green
(BCG) Economy Model. These initiatives aim to improve waste management, promote the
circular economy, and reduce the environmental impact of economic activities. However,
implementing these policies effectively will require strong coordination between government
agencies, the private sector, and civil society.

Chapter 4: FDI in Thailand

4.1 Historical Overview of FDI Inflows

Thailand’s journey in attracting Foreign Direct Investment (FDI) has been marked by
several phases, each reflecting the evolving global economic landscape and domestic
policies. During the 1980s and 1990s, Thailand emerged as a prominent destination for FDI,
largely due to its strategic location, government incentives, and economic liberalization
efforts. The industrial boom during this period, particularly in manufacturing, electronics, and
automotive industries, attracted significant foreign capital, primarily from Japan, the United
States, and Europe.
In the last two decades, Thailand has also leveraged its participation in regional
economic agreements, such as the ASEAN Economic Community (AEC) and Free Trade
Agreements (FTAs) with major economies, to attract FDI. These agreements have enhanced
Thailand’s appeal as a hub for regional operations, particularly for multinational corporations
(MNCs) seeking to tap into Southeast Asia’s growing markets.
Chart 4. 1 Foreign Direct Investment Value Trend in Thailand from 1956 to 2021

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 Source: ResearchGate
The chart shows foreign direct investment (FDI) flows into Thailand from 1975 to
2021, showing significant fluctuations over the periods. From 1975 to the late 1980s, FDI
into Thailand was relatively stable but at low levels, reflecting limited foreign investment
activity. From the early 1990s, FDI began to grow gradually, in line with Thailand’s rapid
industrialization and its growing importance as a manufacturing hub in Southeast Asia.
However, the 1997 Asian financial crisis caused a sharp decline in FDI, as investor
confidence declined. FDI then recovered in the early 2000s, peaking in 2005-2006, thanks to
the global economic boom and strong demand for Thailand’s manufacturing and export
industries. The 2008-2009 global financial crisis again caused a decline in FDI inflows, but
FDI subsequently showed significant volatility in the 2010s, possibly due to political
instability and changing global economic conditions. Notably, FDI inflows increased sharply
in 2021, reflecting the recovery from the COVID-19 pandemic and investor confidence in
Thailand’s economic prospects, particularly thanks to strategic initiatives such as the
“Thailand 4.0” policy and the development of the Eastern Economic Corridor (EEC).

4.2 Major Sources of FDI

Japan has consistently been the largest source of FDI in Thailand, particularly in the
automotive and electronics sectors. Japanese companies, such as Toyota, Honda, and
Mitsubishi, have established extensive manufacturing operations in Thailand, leveraging the
country’s skilled labor force and strategic location to serve both regional and global markets.
The deep integration of Japanese firms into Thailand’s industrial landscape has also led to
significant technology transfer and the development of local supply chains, further
embedding Thailand within global value chains.
The United States and the European Union have also been important sources of FDI,
particularly in sectors such as finance, consumer goods, and information technology. These
investments have been crucial in diversifying Thailand’s economic base and enhancing its
technological capabilities. In recent years, China has emerged as a significant source of FDI,
particularly in infrastructure, energy, and digital economy projects. Chinese investment in
Thailand has been driven largely by the Belt and Road Initiative (BRI), which aims to

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enhance connectivity and trade links across Asia, with Thailand serving as a key hub due to
its geographic and economic position

4.3 Government Policies and Incentives

The Thai government has been proactive in creating an attractive environment for
FDI. The Board of Investment (BOI) is the primary agency responsible for promoting and
facilitating FDI in Thailand. The BOI offers a range of incentives to foreign investors,
including tax exemptions, import duty reductions, and land ownership rights. These
incentives are particularly targeted at industries that align with the government’s
development goals, such as high-tech industries, renewable energy, and digital technology.
In recent years, the “Thailand 4.0” policy has been a cornerstone of the government’s
FDI strategy. This policy aims to transition Thailand from a manufacturing-based economy to
a knowledge-based economy, driven by innovation, research, and development. Under this
policy, the government has identified key industries, such as robotics, biotechnology, and
advanced agriculture, as priority sectors for FDI. Additionally, the development of the
Eastern Economic Corridor (EEC) is a significant part of this strategy, offering enhanced
incentives and infrastructure to attract investment in high-tech and innovative industries.

4.4 Recent FDI Statistics

Foreign direct investment (FDI) in Thailand has shown remarkable resilience and
growth, even amidst global economic uncertainties. The first five months of 2024 have been
particularly noteworthy, reflecting significant increases in both the number of foreign
investment projects and their total value. During this period, a total of 317 foreign companies
received approval to invest in Thailand under the Foreign Business Act. The foreign
investment in this period amounted to 71,702 million baht, marking a substantial 58 percent
increase in value and a 16 percent rise in the number of projects compared to the same period
in 2023.
Japan emerged as the largest source of FDI during these five months, with 84 projects
contributing a massive 40,214 million baht to Thailand’s economy. This reflects Japan’s
continued confidence in Thailand as a strategic investment destination, particularly in sectors
like automotive, electronics, and high-tech industries. Singapore followed with 51 projects,
amounting to 5,189 million baht, showcasing the city-state’s interest in expanding its regional
influence through investments in Thailand. The United States also played a significant role,
with 50 projects valued at 1,196 million baht, highlighting its strategic investments in various
sectors, including finance, consumer goods, and technology.
China has become an increasingly important investor, with 38 projects totaling 5,485
million baht, driven largely by its Belt and Road Initiative (BRI), which aims to enhance
regional connectivity and economic integration. Hong Kong, another major investor,
contributed 28 projects worth 12,048 million baht, reflecting its strategic interest in sectors
like real estate, finance, and high-value manufacturing.
A significant portion of this foreign investment has been directed toward the Eastern
Economic Corridor (EEC), a critical area of development under Thailand’s “Thailand 4.0”

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economic model. The EEC is designed to attract high-tech and innovation-driven industries,
offering world-class infrastructure and enhanced incentives. During the first five months of
2024, 99 foreign investors, representing 31 percent of the total foreign investors in Thailand,
showed interest in investing in the EEC. The investment value in the EEC was 18,224 million
baht, accounting for 25 percent of the total foreign investment during this period. This
highlights the EEC’s growing importance as a hub for advanced industries and a focal point
for Thailand’s future economic growth.
Among the investors in the EEC, Japan once again led with 31 projects worth 3,523
million baht, reflecting its strategic focus on expanding its manufacturing and technological
footprint in the region. China followed with 19 projects valued at 1,803 million baht, while
Hong Kong’s 11 projects amounted to 5,005 million baht, underscoring the significant
interest from these economies in the high-potential EEC zone. The remaining 38 projects,
worth 7,893 million baht, were from various other countries, further diversifying the
investment landscape in the EEC.
The upward trend in FDI is further evidenced by data from the Thailand Board of
Investment (BOI), which reported that the value of applications for investment promotion in
the first quarter of 2024 increased by 31 percent to 228,207 million baht (USD 6.2 billion)
compared to the same period in 2023. This surge in investment applications indicates
growing investor confidence in Thailand’s economic prospects and the effectiveness of the
government’s efforts to attract leading companies worldwide. The first quarter saw a total of
724 project applications filed with the BOI, representing a 94 percent increase over the same
period last year. Of these, 460 projects involved foreign investment, highlighting the strong
international interest in Thailand’s economy.
The electronics and electrical appliances industry emerged as the sector with the
highest value of investment applications during the first quarter of 2024. This reflects
Thailand’s strategic position in the global electronics supply chain and its ability to attract
significant investments from multinational corporations. The automotive and parts sector also
continued to receive substantial FDI, with Thailand positioning itself as a major hub for the
production of electric vehicles (EVs), in line with global trends towards sustainable
transportation. Other key sectors that saw significant investment applications include
petrochemicals and chemicals, digital technology, and agriculture and food processing, all of
which are vital to Thailand’s economic diversification and growth strategy.
This sustained and robust FDI performance not only underscores Thailand’s potential
as a leading investment destination in Southeast Asia but also reflects the success of its
strategic initiatives, such as the Thailand 4.0 policy and the development of the EEC. These
efforts are aimed at transforming Thailand into a knowledge-based economy, driving
innovation, and positioning the country as a regional leader in high-tech industries, advanced
manufacturing, and sustainable development. As Thailand continues to attract diverse
investments from around the world, its economy is poised for significant growth and
transformation, ensuring its continued relevance and competitiveness on the global stage.

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 4.5 Key Sectors Receiving FDI
Foreign Direct Investment net inflows in Thailand equalled US$ 2.48 billion in the
year 2021 with Manufacturing and Financial and insurance activities receiving nearly 70% of
total FDI. Manufacturing was a clear favorite among foreign investors, far surpassing the
investments received by other sectors. Chart 4.1 below, indicates the five main invested
sectors in 2018, and their respective investment shares. It is important to note that foreign
investors were quite attracted to the Financial Services sector in Thailand, a country not
usually deemed a financial center in the region. This might be an indication that the region’s
set of financial capitals – which has historically included only Hong Kong and Singapore –
could be expanding.
Chart 4. 2 Main Invested Sector in Thailand

Source: Asian Business Partners (Bank W. , 2021) ((UNCTAD), 2022)

4.6 Notable FDI Projects and Their Impacts

The year 2023 witnessed a significant surge in foreign direct investment (FDI)
applications in Thailand, with a total of 1,394 applications for investment promotion filed by
foreign investors. This marked a 38% increase from the previous year, and an impressive
72% increase in combined investment value, reaching 663.24 billion baht, driven by a notable
number of large-scale projects.
As in the previous year, investment applications from the People’s Republic of China
topped the ranking of FDI sources by investment value, with 430 projects totaling 159.39
billion baht, accounting for 24% of the total FDI applications. The electronics industry and
the automotive supply chain, including electric vehicles (EV), were significant contributors to
this influx of Chinese investments.
Singapore secured the second position with 194 projects worth a combined 123.39
billion baht, largely driven by large project applications from Singapore-based affiliates of

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international companies, particularly in the solar cells and electronics sectors. The United
States ranked third with 40 projects, amounting to a combined 83.95 billion baht. Japan
followed with 264 projects representing a combined value of 79.15 billion baht, marking a
60% increase from the previous year. Taiwan rounded out the top five with 94 projects
valued at 54.6 billion baht.
Regionally, the Eastern Economic Corridor (EEC) remained Thailand’s prime
industrial area, leading the ranking with 460.5 billion baht worth of investment, which
accounted for 54% of the total pledges. The central region followed, attracting around 262
billion baht, or 31% of the total.
Among the notable investment applications approved by the Board of Investment
(BOI) were several high-profile projects that are expected to have a substantial impact on
Thailand’s economy:
● NextDC, a leading Australian data center operator, received approval for a 13.76
billion baht investment in a new hyperscale data center in Bangkok.
● CtrlS Datacenters (Thailand) Co., Ltd., a unit of CtrlS Datacenters LTD, a
global data center operator based in India, was approved for a 5.04 billion baht
investment in a new hyperscale data center located in the Digital Industry and
Innovation Promotion Zone (EECd) in Chonburi province.
● Xingda Steel Cord (Thailand) Co., Ltd. received approval for a 6.66 billion
baht investment to build a new factory producing steel cord, bead wire, and steel
wire, mainly for use in tire manufacturing. This plant, also located in Chonburi
province, is expected to export 50% of its output, further strengthening
Thailand’s automotive sector supply chain.
● TPI Polene Power PCL was approved for a 4.24 billion baht investment in
steam production for distribution to power and cement production plants. The
facility, located in Saraburi province, will produce 480 tons of steam per hour,
utilizing power generated from waste (refuse-derived fuel, or RDF).
Several of these high-profile FDI projects are expected to significantly impact
Thailand’s economy. The development of the high-speed rail network, largely funded by
Chinese investment, is poised to enhance regional connectivity and further integrate Thailand
into global supply chains. This project, part of China’s Belt and Road Initiative (BRI), is seen
as a critical infrastructure development that will boost trade and investment flows in the
region.
The automotive sector has also seen substantial FDI, with Japanese automakers such
as Toyota, Honda, and Mitsubishi continuing to expand their production capacities in
Thailand. These investments not only create jobs but also lead to technology transfer and skill
development, contributing to the country’s overall industrial growth.
In the renewable energy sector, foreign investments have driven the development of
several large-scale solar and wind power projects. These initiatives are aiding Thailand in
reducing its dependence on fossil fuels and transitioning toward a more sustainable energy
mix. The growth of the renewable energy sector is also creating new opportunities for local
businesses and spurring innovation in energy technologies.

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Chapter 5: Economic Development in Thailand

5.1 Thailand’s Economic Growth

Thailand’s economic development over the past several decades has been marked by
significant growth and structural transformation. Once primarily an agrarian economy,
Thailand has evolved into a more diversified economy with strong manufacturing and
services sectors. This transformation has been driven by a combination of factors including
strategic government policies, foreign direct investment (FDI), and the country’s integration
into global trade networks.
Chart 5. 1 Thailand’s GDP Growth from 1996 to 2021

Source: World Economics

In the late 1990s and early 2000s, Thailand experienced steady but slower GDP
growth relative to the broader Asia-Pacific region and emerging markets. This period
highlights the country’s gradual recovery from the 1997 Asian Financial Crisis. However, the
slower growth rate compared to its regional peers suggests that Thailand struggled to keep
pace with the rapidly growing economies in the Asia-Pacific and other emerging markets,
which were experiencing significant economic expansion due to increased globalization and
industrialization.
Following the 2008 Global Financial Crisis, Thailand’s GDP growth curve flattened
further. The chart illustrates that while the Asia-Pacific region and emerging markets
rebounded relatively quickly and continued their growth trajectories, Thailand’s recovery was
more subdued. This period likely reflects structural weaknesses in Thailand’s economy,
including declining private investment, challenges in productivity, and the country’s reliance
on traditional industries like agriculture and manufacturing, which were less dynamic
compared to the service and technology-driven sectors flourishing in other regions.
From 2016 onwards, the stagnation in Thailand’s GDP growth becomes particularly
evident. While other regions continued to see gains, Thailand’s growth remained relatively

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flat, with the 2020-2021 period marking a slight decline, potentially exacerbated by the
COVID-19 pandemic. The stagnation suggests that Thailand faced significant economic
headwinds during this period, including declining exports, political instability, and a lack of
significant structural reforms that could have revitalized economic growth. Moreover, the
pandemic’s impact on tourism—a key sector for Thailand—further strained the economy,
leading to a notable divergence between Thailand’s economic performance and that of its
regional and global peers.
The widening gap between Thailand and the Asia-Pacific and emerging markets
underscores Thailand’s challenges in sustaining high growth rates. While other economies
adapted to global trends and diversified their economic bases, Thailand’s reliance on
traditional sectors and its slower adoption of new technologies and industries may have
hindered its growth potential. This divergence also raises concerns about Thailand’s future
competitiveness in the global economy, especially as other emerging markets continue to
advance at a faster pace.
Overall, the chart encapsulates Thailand’s struggle to maintain robust economic
growth in the face of regional and global challenges. The stagnation in recent years highlights
the need for renewed focus on economic reforms, diversification, and innovation to ensure
that Thailand can keep pace with its regional peers and sustain long-term economic
prosperity.

5.2 Structural Changes in Thailand’s Economy

The conclusion of the topic “Structural Transformation and Inclusive Growth in
Thailand” by Peter Warr and Waleerat Suphannachart published in August 2022 stated that
over the six-and-a-half decades between 1951 and 2017, Thailand experienced a significant
transformation in its economic structure, with an average annual growth rate of 4% in real
GDP per capita. The economy shifted dramatically from agriculture to manufacturing and
services. The output share of agriculture contracted, while manufacturing expanded steadily,
and services gained prominence, particularly in employment terms. This shift allowed
relatively unskilled labor to transition from low-productivity rural jobs to more productive
urban and peri-urban employment in industry and services, significantly contributing to
economic growth and poverty reduction.
Figure 5. 1 Varieties of structural transformation in Thailand, 1964–2011

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 Source: data from the Groningen Growth and Development Centre (GGDC) 10-Sector
Database Version 2015 (Timmer et al. 2015).
This structural transformation is evidenced by the data from the Groningen Growth
and Development Centre (GGDC) 10-Sector Database (Timmer et al. 2015). The graph
highlights how Thailand transitioned from “Primary industrialization” in the 1981-1987
period to “Upgrading industrialization” in 1988-1996. However, from 2000-2017, the country
faced “Stalled industrialization”, indicating a slowdown in the pace of industrial growth and
employment in manufacturing. This period of stalled industrialization suggests challenges in
sustaining the momentum of industrial growth that had characterized the previous decades.
The social and economic flexibility that facilitated this dramatic structural change was
supported by government policies that promoted urbanization and infrastructure
development. Physical transport infrastructure across Thailand has been excellent by
developing country standards since the 1960s, enabling efficient movement of goods and
labor. Additionally, public policy did not obstruct the relocation of workers to new industrial
regions, despite urban congestion, allowing the economy to adapt to its evolving industrial
landscape.

5.3 Key Indicators of Thailand’s Economic Growth

● GDP Growth Rates
Thailand's GDP growth rates have fluctuated over the decades, reflecting the
country’s economic resilience and adaptability. The average growth rate was 7.5% during the
boom years from 1960 to 1996, followed by slower but steady growth of around 3.5% in the
2010s. The sharp contraction in 2020 due to the COVID-19 pandemic was a significant

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setback, but the economy has shown signs of recovery in 2021 and 2022, with growth
projected to accelerate in the coming years.
● Income Levels and Poverty Rates
Thailand has made remarkable progress in reducing poverty, with the poverty rate
declining from over 60% in the 1960s to less than 10% in the 2020s. This improvement has
been driven by sustained economic growth, structural transformation, and targeted social
policies. However, income inequality remains a challenge, with significant disparities
between urban and rural areas and across different regions of the country. The Gini
coefficient, which measures income inequality, remains relatively high, indicating that the
benefits of growth have not been evenly distributed.
● Employment Statistics
The shift from agriculture to manufacturing and services has led to changes in
employment patterns. The share of the labor force employed in agriculture has declined
significantly, while employment in manufacturing and services has increased. The
unemployment rate in Thailand has traditionally been low, averaging around 1-2% in recent
years. However, underemployment and informal employment remain concerns, particularly
in rural areas and among vulnerable groups.
● Infrastructure Development
Infrastructure development has been a key driver of Thailand’s economic growth. The
country has invested heavily in transportation, energy, and telecommunications infrastructure,
which has facilitated trade, investment, and connectivity. The development of the Eastern
Economic Corridor (EEC), a flagship project under the “Thailand 4.0” policy, is expected to
further enhance infrastructure and attract high-tech industries. The EEC aims to position
Thailand as a regional hub for innovation and advanced industries, with world-class
infrastructure and connectivity.

Chapter 6: Impact of FDI on Thailand’s Economy

Foreign Direct Investment (FDI) has played a significant role in shaping the economic
landscape of Thailand. The impact of FDI can be categorized into positive and negative
effects, each contributing to different aspects of the economy.

6.1 Positive Impacts

● Capital and Investment
The influx of FDI has substantially increased the availability of capital within
Thailand, enabling the country to finance large-scale infrastructure projects, industrial
facilities, and technological advancements that may not have been possible otherwise. This
increased capital flow has not only fueled domestic investments but also accelerated the
modernization of Thailand’s economy, particularly in manufacturing and services. The
expanded capital base has allowed Thailand to undertake projects such as transportation
infrastructure, which has further enhanced its connectivity and attractiveness to investors. For
instance, the Eastern Economic Corridor (EEC) initiative, which aims to develop a high-tech
industrial zone in the eastern provinces of Thailand, has seen substantial FDI, particularly
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from Japanese and Chinese companies. This project is expected to boost Thailand’s GDP
significantly and enhance its position as a regional hub for advanced industries.
● Technology and Skills
One of the most significant benefits of FDI is the transfer of technology and
managerial know-how from multinational corporations to the local economy. Foreign
companies bring with them advanced technologies and innovative practices that can be
adopted by domestic firms, improving overall productivity and efficiency. This transfer also
extends to the workforce, where Thai workers gain exposure to new technologies and
advanced methodologies. The resulting skill enhancement not only increases the
employability of the local workforce but also contributes to the country’s long-term economic
competitiveness by fostering a more skilled labor market. The automotive industry is a prime
example, where companies like Toyota and Honda have not only set up manufacturing plants
but also established R&D centers in Thailand.
● Export Growth
FDI has been instrumental in driving Thailand's export-oriented growth. By attracting
multinational companies that are deeply integrated into global value chains, Thailand has
been able to enhance its product quality and competitiveness on the international stage. This
is particularly evident in sectors such as electronics, automotive, and textiles, where foreign
investments have led to improved standards and increased access to global markets.
Consequently, Thailand’s export revenues have surged, providing a vital source of income
and a key driver of the country’s economic expansion. For example, the electronics sector,
which accounts for a significant portion of Thailand's exports, has benefited immensely from
investments by multinational corporations like Samsung and Intel. These companies have set
up production facilities in Thailand, leveraging the country’s strategic location and skilled
labor force to produce goods for global markets.
● Industrial Development
FDI has played a pivotal role in the diversification and development of Thailand’s
industrial sector. By encouraging the growth of high-tech and value-added industries, foreign
investments have helped Thailand move up the global value chain. The presence of foreign
firms has also stimulated the development of ancillary industries, further diversifying the
country’s industrial base and making it more resilient to economic shocks. This
diversification has contributed to the overall stability and robustness of the Thai economy,
enabling it to withstand global economic fluctuations better.
● Employment
FDI has been a significant driver of job creation in Thailand. The establishment of
foreign-owned enterprises, particularly in manufacturing and services, has generated
numerous employment opportunities. This job creation has not only provided income for the
growing labor force but also helped reduce poverty, especially in rural areas, by attracting
workers to urban centers where better employment prospects are available. The increased
demand for labor has also put upward pressure on wages, improving the standard of living for
many Thai citizens.

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 6.2 Negative Impacts
● Market Dominance
Despite the many benefits of FDI, there are concerns that it may lead to market
dominance by foreign firms, potentially crowding out local businesses. The presence of large
multinational corporations can overshadow domestic companies, particularly small and
medium-sized enterprises (SMEs), which may struggle to compete with the financial
resources, technology, and scale of these global players. This can lead to a concentration of
market power in the hands of a few large firms, reducing competition and potentially stifling
innovation within the local economy. For instance, in the retail sector, the entry of global
giants like Tesco and Walmart has posed significant challenges for local retailers, who
struggle to compete with their pricing power and extensive supply chains.
● Income Inequality
While FDI has contributed to economic growth and job creation, it has also been
associated with rising income inequality in Thailand. The benefits of FDI tend to be
concentrated in certain regions and sectors, leading to disparities in income distribution. For
instance, regions that attract more FDI, such as Bangkok and its surrounding areas, tend to
experience faster economic growth and higher income levels compared to other parts of the
country. This regional disparity can exacerbate social tensions and contribute to unequal
development across the country.
● Environmental Concerns
The rapid industrialization and increased economic activity resulting from FDI have
raised environmental concerns. The expansion of industries, particularly those that are
resource-intensive, has led to environmental degradation, including air and water pollution,
deforestation, and increased greenhouse gas emissions. The long-term sustainability of
economic growth is at risk if these environmental impacts are not adequately addressed, as
they could lead to a depletion of natural resources and harm public health, thereby
undermining the economic gains achieved through FDI. The case of the Map Ta Phut
Industrial Estate is particularly illustrative, where the concentration of petrochemical plants
has led to significant air and water pollution, affecting the health of local communities and
the environment.

Chapter 7: Solutions to Maximize Positive Impact

and Minimize Negative Impact

7.1 Policy Recommendations

● Strengthening Regulatory Frameworks
To maximize the positive impact of Foreign Direct Investment (FDI) while
minimizing its potential negative consequences, Thailand must strengthen its regulatory
frameworks. This involves implementing more robust regulations to protect local businesses
from being overshadowed by multinational corporations. For example, anti-trust laws can be
strengthened to prevent monopolistic practices, and local content requirements can be
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enforced to ensure that a portion of the inputs used in foreign-owned companies are sourced
locally. Additionally, environmental regulations should be made stricter to prevent industrial
pollution and environmental degradation, as seen in cases like the Map Ta Phut Industrial
Estate.
● Enhancing Infrastructure
Enhancing infrastructure is crucial to support FDI projects and ensure their successful
integration into the local economy. Infrastructure development, particularly in transport and
logistics, can improve the efficiency of FDI projects and help attract more high-quality
investments. The Eastern Economic Corridor (EEC) is a prime example of how infrastructure
investment can create a favorable environment for FDI, making it easier for foreign
companies to operate and contribute to the local economy. Developing infrastructure in
underdeveloped regions can also help in reducing regional income disparities, ensuring that
the benefits of FDI are more evenly distributed across the country.
● Promoting Inclusive Growth Policies
To address the issue of income inequality exacerbated by FDI, Thailand should
promote inclusive growth policies. This could involve directing FDI towards sectors that
have a high potential for creating jobs and lifting people out of poverty. For instance,
incentivizing FDI in the agricultural sector could help in improving productivity and incomes
in rural areas, thereby reducing regional disparities. Additionally, social policies that focus on
education, healthcare, and social safety nets should be strengthened to ensure that the benefits
of FDI reach the most vulnerable populations.
● Encouraging Sustainable and Responsible Investment Practices
Thailand should encourage sustainable and responsible investment practices among
foreign investors. This could be achieved by providing incentives for companies that adhere
to environmental, social, and governance (ESG) standards. For example, tax breaks or
subsidies could be offered to companies that invest in green technologies, engage in fair labor
practices, or contribute to community development. By promoting responsible investment,
Thailand can ensure that FDI contributes to sustainable development and does not lead to
negative social or environmental outcomes.

7.2 Incentive Programs

Incentive programs can play a vital role in attracting high-quality FDI that contributes
to technology transfer and skill development. The Thai government could offer tax incentives
or grants to foreign companies that invest in R&D, set up training programs for local
workers, or collaborate with local universities and research institutions. By focusing on
sectors with high growth potential, such as biotechnology, renewable energy, and advanced
manufacturing, Thailand can attract FDI that not only boosts economic growth but also drives
innovation and long-term competitiveness.

7.3 Collaboration and Partnerships

Fostering collaboration between foreign investors and local businesses is another
effective strategy to maximize the positive impact of FDI. Public-private partnerships (PPPs)

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can be promoted for infrastructure development, ensuring that both the government and
private sector share the risks and benefits of large-scale projects. Additionally, joint ventures
between foreign and local companies can be encouraged to facilitate technology transfer,
improve local supply chains, and enhance the capabilities of domestic firms. For example, in
the automotive sector, collaborations between Thai suppliers and foreign manufacturers have
led to significant improvements in quality and efficiency, benefiting the entire industry.

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 CONCLUSION
In conclusion, Foreign Direct Investment (FDI) has profoundly influenced Thailand’s
economic landscape, driving growth, modernization, and global integration. The positive
impacts of FDI, including increased capital, technology transfer, export growth, industrial
development, and employment creation, highlight its crucial role in propelling Thailand’s
economic advancement. The influx of foreign investments has enabled Thailand to embark
on significant infrastructure projects, enhance technological capabilities, and expand its
industrial base, contributing to its status as a regional economic hub.
However, the benefits of FDI are accompanied by challenges such as market
dominance by foreign firms, rising income inequality, and environmental degradation. These
negative impacts underscore the need for balanced policies and strategies to ensure that the
gains from FDI are equitably distributed and sustainable in the long term.
Chapter 7 outlines key recommendations to address these challenges, including
strengthening regulatory frameworks, enhancing infrastructure, promoting inclusive growth
policies, and encouraging sustainable investment practices. By implementing these solutions,
Thailand can better harness the potential of FDI while mitigating its drawbacks, leading to a
more resilient and inclusive economic environment.
Overall, while FDI remains a pivotal element of Thailand’s economic strategy, its
successful integration into the national economy requires ongoing attention to both its
positive contributions and potential adverse effects. With thoughtful policy interventions and
strategic planning, Thailand can continue to leverage FDI as a powerful tool for sustainable
development and economic prosperity.

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