Exporting, foreign direct investment and firm heterogeneity in Thailand

Abstract

This thesis presents an empirical investigation of the relationship between exporting, foreign direct investment (FDI) and firm heterogeneity in Thailand using a firm-level data from the Annual Survey of Thailand’s manufacturing industry between 2001 and 2004. We first examine the factors affecting the export participation decision of a firm by emphasising the importance of sunk entry costs, structure of ownership and other firm-specific characteristics. If a firm has export experience, the probability of exporting is likely to increase in the current period. Other firm-specific characteristics such as ownership, productivity, firm size, training and establishment location also significantly determine the probability of exporting. Second, we consider the role of the financial factors and the export participation decision. The internal finance of a firm as a measure of financial health is used to explain the capability to invest in order to enter export markets. The liquidity ratio has a positive and significant effect on the probability of exporting whilst the leverage ratio has the opposite effect. Third, we make a distinction between single- and multi-product firms and examine the characteristics associated with a multi-product firm. Being a multi-product firm and the number of products produced are associated with various firm-specific characteristics such as productivity, firm size and research and development (R&D). Finally, we emphasise on an indirect impact of FDI inflows in the host economy by investigating spillover effects from foreign to domestic firms. The positive and significant results for horizontal productivity spillovers and vertical export spillovers confirm that foreign firms do generate some positive externalities to domestically-owned firms.