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The role of Japan’s FDI on economic development in the GMS and its impact on the Thai economy

August 31, 2018 0 Comments 0 Participants

Japan’s FDI has an important role on Thailand’s economic growth constantly. Thailand has been regarded as the most important recipient of Japan’s FDI in ASEAN for a long time.  However, Japan has started to pay more attention on granting ODA and initiating FDI in other Great Mekong Subregion (GMS) countries, especially in Vietnam. Japan has signed bilateral agreements on investment cooperation with Vietnam, Cambodia and Lao PDR. After implementing such agreements, there has been a tremendous increase in Japan’s FDI in Vietnam and other GMS countries. The objectives of this research are to assess the impact of Japan’s FDI on economic development of GMS countries. Also, the research aims to evaluate the impact of Japan’s FDI in other GMS countries on the level of Japan’s FDI in Thailand. 

The results of this research indicate that Japan’s FDI promotes economic growth, wage rates, export values and total factor productivity in GMS countries. Especially, Japan’s FDI encourages such economic factors via a channel of labor productivity. Precisely, the promotion of productivity comes from direct training, on the job training, knowledge spillovers, technology spillovers, technology transfers, and backward spillovers to Thai enterprises in Japan enterprises’ supply chains. In contrary, Japan’s FDI has no roles on employment promotion since GMS countries have a large agricultural sector which can provide large employment. Therefore, the FDI only causes labor movement from the agricultural sector to industrial ones.  Considering the impact of Japan’s FDI in other GMS countries on the FDI level in Thailand, the study finds that the Japan’s FDI in Vietnam has no linkages as a co-production base with the FDI in Thailand. As a result, the Japan’s FDI in Vietnam is substitute to its FDI in Thailand. However, it is possible that the Japan’s FDI in other GMS countries, namely Lao PDR, Cambodia and Myanmar might be complement with the FDI in Thailand since they might be linked as international production network with Thailand.