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Human Capital, Trade, FDI and Economic Growth in Thailand: What causes What?

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  • Sailesh Tanna
  • Kitja Topaiboul
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    Abstract

    We investigate the causal links between human capital, openness through trade and FDI, and economic growth using quarterly data for Thailand over the period 1973:2-2000:4. A number of hypotheses are investigated including, in particular, FDI-led growth and export-led growth, as well as the reverse linkages from growth to FDI and exports. The importance of human capital is highlighted as complementary to trade and FDI inflows, underlying the importance of technology adoption. We find that, after controlling for domestic investment, government expenditure and imports, support for FDI-led growth is not as strong as export-led growth, although allowing for the joint interaction of FDI and human capital reveals a positive FDI effect above a minimum threshold of human capital, estimated to be around 4.5 years of average secondary schooling attainment. Extending our study using multivariate causality tests conducted within a vector error correction framework, we also find significant effects of domestic investment and trade openness, providing support for import-led growth, but direct support for FDI-led growth as well as growth-led FDI is again relatively weak, reinforcing the conclusion that trade openness has played a more significant role than FDI in influencing Thai economic growth. But the results reveal a subtle role for technology transfer through the complementary effect of trade on FDI, and FDI on government expenditure, which thereby influences human capital development with spillovers onto domestic investment and growth. This leads us to argue that there is a potential role for FDI interacting with human capital in influencing the future development of the Thai economy, given its recently active policy of FDI promotion.

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    Bibliographic Info

    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c010_046.

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    Length: 28 pages
    Date of creation: Jun 2005
    Date of revision:
    Handle: RePEc:deg:conpap:c010_046

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    Keywords: Trade Openness; FDI; Growth; VECM; Technology Adoption;

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    1. Riezman, R.G. & Summers, P.M. & Whiteman, C.H., 1991. "The Engine of Growth or Its Handmaiden? A Time Series Assessment of Export-Led Growth," Working Papers 92-27, University of Iowa, Department of Economics.
    2. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    3. Hall, Stephen G & Milne, Alistair, 1994. "The Relevance of P-Star Analysis to UK Monetary Policy," Economic Journal, Royal Economic Society, vol. 104(424), pages 597-604, May.
    4. Yingqi Wei & Xiaming Liu & Haiyan Song & Peter Romilly, 2001. "Endogenous innovation growth theory and regional income convergence in China," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(2), pages 153-168.
    5. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    6. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
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