Proceedings of 28th International Business Research Conference
8 - 9 September 2014, Novotel Barcelona City Hotel, Barcelona, Spain, ISBN: 978-1-922069-60-3
Thai Outward Direct Investment: Trends, Patterns and
Determinants
Tientip Subhanij* and Chitchanok Annonjarn**
Over the past decades, Thailand has been one of the major destinations for foreign
direct investment (FDI) and a net importer of capital. Recently, however, this trend
has changed as outward FDI (OFDI) has outpaced inward FDI. Using a unique firmlevel FX transaction data, this paper is the first attempt in exploring the distribution of
Thai OFDI by types of investment (horizontal, vertical, conglomerate) as well as by
controlling-stakes (Thai-controlled and foreign-controlled companies) and discover a
new set of facts on their patterns, trends and main drivers.
Two detailed OFDI data sets are utilized. The aggregate data from 2005-2012 is
retrieved from the Bank of Thailand database. The data that distinguishes between
horizontal, vertical and conglomerate, as well as Thai- and foreign- controlled
companies are retrieved and classified from a firm-level FX transaction database -- a
unique data set capturing gross flows, destination country, industry classification, as
well as types of OFDI flows. For estimation, we use a gravity type model of foreign
outward direct investment as a basis for our analysis and augmented by other
variables used in earlier empirical studies. Panel data analysis with Fixed-Effects
(FE), Random-Effects (RE) and Hausman-Taylor (HT) methods are performed on
both aggregate and firm-level dataset.
The paper highlights key features of Thai OFDI that have not been identified in the
literature to date. First, the majority of Thai OFDI is horizontal in nature and more than
one-third of these enterprises are in fact foreign-owned. Second, in contrast to what is
commonly believed that horizontal OFDI usually flows to developed countries to serve
the local market and vertical investment to developing countries to source production
of intermediate goods, we show that both horizontal and vertical investment look
much more similar than previously thought, with both types of flows going mostly to
developed countries. Third, we find that conglomerate investment strategy which has
by and large been ignored by the empirical literature is in fact far from uncommon and
that a considerable proportion of Thai OFDI involves conglomerate investment.
Fourth, evidence is found in support of the market access theories of horizontal
investment and the comparative advantage theory of vertical OFDI. The motive of
conglomerate investment strategy is found to be more similar to vertical than
horizontal investment strategy. Most companies that pursue vertical strategy also
apparently pursue conglomerate diversification strategy in the same countries, usually
in unrelated lines of business such as financial and insurance business in order to
ensure stronger financial position. Fifth, we show that Thai-controlled OFDI is marketseeking in nature and tend to prefer investing abroad in the form of equity investment
in location closer to home. On the contrary, foreign-controlled companies are driven
by other motives than replicating or outsourcing production. The bulk of foreigncontrolled companies’ investments are in the form of extension of inter-company
loans to related corporations abroad. Last, in terms of implication of Thai OFDI to
domestic economic activities, we found no evidence that Thai OFDI has significantly
crowded out domestic investment or replaced exports.
Keywords: Foreign Direct Investment (FDI), Multinational Firms, Thailand
JEL Codes: F15, F21, F23
*
Dr. Tientip Subhanij is Division Executive, Economic Research Department, Bank of Thailand
Email: TientipS@bot.or.th
**
Ms. Chitchanok Annonjarn is Senior Economist, Domestic Economy Department, Bank of Thailand
Email: ChitchaA@bot.or.th