The role of multinational enterprises and geographical spillovers on regional development in Thailand

This dissertation is concerned with the relationship between industrial agglomerations and geographical spillovers arising from the investment of multinational enterprises (MNEs) in Thailand. It seeks to examine two objectives. The first objective is to identify provinces with significant industrial agglomerations or hotspots, and the second objective is to examine the relationship between industrial agglomerations and MNE-driven spillovers. While industrial agglomerations and foreign direct investment (FDI) concentrations will be quantitatively examined by spatial statistics and spatial econometrics, the relationship between industrial agglomerations and spillovers from foreign capital will be examined through MNE surveys and interviews.

Theories related to the New Economic Geography suggest that the concentration or agglomeration of economic activities give rise to positive externalities that are associated with dynamic learning and innovations including enhanced skills, pecuniary gains from firms being close to each other, and denser inter-firm linkages. When a specific location begins to grow faster than other locations, it will be strengthened by the dynamics of cumulative causation. More specifically, by concentrating foreign capital and industrial activities in an area like the capital city of Bangkok, the New Economic Geography implies that industrial input-output linkages can be built between more peripheral regions and the Bangkok region through forward and backward integration. As a result, knowledge and technological spillovers through this integration would increase production productivities in peripheral regions leading to increased regional income convergence.

By using both published secondary and primary (firm-level) data, this study shows that foreign investment and industrial agglomerations tend to be concentrated around the Bangkok region. Spillovers areas are associated with high growth areas. Input-output linkages and labor mobility between MNEs and their plants are much more evident both within and between agglomeration and spillovers areas than other provinces. Geographical spillovers in particular tend to occur around the neighboring areas of industrial agglomerations such as Bangkok. Very limited positive externalities from MNEs are observed in the more peripheral provinces. Additionally, government incentives are found to be the most important locational factor in investment decisions among MNEs.