PUBLICATIONS & REPORTS

Contents Introduction

This paper examines the prospects for foreign multinational corporations (MNCs) in Thailand in the late 1990s. After a brief introduction, the paper discusses a few basic conceptual issues, emphasizing the importance of the distinction between MNCs and non-MNCs for economic analysis. The paper then looks at the roles of foreign MNCs in Thailand, showing that foreign direct investmen t (FDI) of foreign MNCs is a relatively unimportant source of fixed investment financing and only a moderately important source foreign capital in Thailand. In manufacturing, foreign MNCs are shown to be a relatively large source of Thai exports as compared to production or employment, and to account for very large shares of all economic activities in a few important industries, most prominently electric machinery and transport machinery. The paper then takes up the prospects for foreign MNCs in Thailand, emphasizing the strong and positive relationship between FDI and Thailand’s GDP. Accordingly, the economic slowdown that Thailand is likely to experience in late 1990s will adversely affect FDI. It is noted, however, that the effects on FDI are likely to be much larger than the effects on employment, production, and exports by foreign MNCs because FDI flows are often highly volatile, production and other related activities are much more stable. However, the extent of Thailand’s economic slowdown will have important effects on the level of new investments as well as on the level of withdrawals by foreign MNCs in the medium run.

The paper then discusses the substantial problems in Thailand’s policy making institutions because these problems are thought to be the major cause of the recent slowdown. The most important principle here is that Thailand must do much more to promote competition in Thailand’s markets and increase the competitiveness of Thailand as a location for economic activity. The need for greater competition is most apparent in the financial sector, even though increased emphasis on competition in this sector will likely lead to the bankruptcy of a number of financial institutions. In addition, the competitiveness of firms operating in Thailand, again both foreign and local, is further undermined by the failure to provide sufficient infrastructure (e.g., education, transport, and communication) and addressing these deficiencies will remain an important task for policy makers. The paper concludes that Thailand’s policy makers will determine the future of foreign MNCs in Thailand but that there is still considerable uncertainty about the ability of Thai policy makers to come to grips with the substantial problems they face. Will Thailand’s present policy makers be unable to make necessary reforms and thereby continue to create a bleak economic outlook for Thailand and foreign MNCs operating in the country? Or will present difficulties be a catalyst to major policy reforms and a brighter economic future, as in Indonesia in the mid-1980s or in Thailand itself in the early 1980s? The jury is still out.