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Effectiveness of industrial policy on firm productivity: evidence from Thai manufacturing

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  • Juthathip Jongwanich
  • Archanun Kohpaiboon

Abstract

This paper examines the effects of industrial policy on firm productivity, using a three‐year panel data set of Thai manufacturing as a case study. A range of industrial policy tools is defined, including tariff measures, subsidies, and investment incentives through the Board of Investment (BOI), which represent the main industrial policy tools used in Thailand. The effect of ‘water in the tariffs’ and partial trade liberalisation undertaken through free trade agreements (FTAs) signed between Thailand and her trading partners is also examined. The key findings concern the role traditional tools, that is trade openness, R&D, and skills upgrading, play in fostering firm productivity. Promoting a conducive environment, especially within domestic competition, is crucial in encouraging firm productivity. Some industrial policy tools are effective in promoting firm productivity, that is providing investment incentives via the BOI and lowering tariff protection. Subsidies, by contrast, tend to degrade firm productivity. Among trade protection measures, the effective rate of protection, which includes water in the tariffs encountered by exporting firms, has the greatest effect on firm productivity. The FTA‐led trade liberalisation fails to add substantial competitive pressure and induce firms to improve productivity. Such statistical insignificance reflects the nature of FTA commitments that Thailand has made so far.

Suggested Citation

  • Juthathip Jongwanich & Archanun Kohpaiboon, 2020. "Effectiveness of industrial policy on firm productivity: evidence from Thai manufacturing," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 34(2), pages 39-63, November.
    • Handle: RePEc:bla:apacel:v:34:y:2020:i:2:p:39-63
    DOI: 10.1111/apel.12311
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    Cited by:

    1. Juthathip Jongwanich, 2022. "Free Trade Agreements (FTAs) and Export Structures in Thailand," Discussion Papers 20230617, Thammasat University, Faculty of Economics, revised May 2022.
    2. Jongwanich, Juthathip & Kohpaiboon, Archanun & Obashi, Ayako, 2022. "Technological advancement, import penetration and labour markets: Evidence from Thailand," World Development, Elsevier, vol. 151(C).

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