FOREIGN DIRECT INVESTMENT IN THAILAND AND MALAYSIA

Abstract

Over the past two decades, an increasing number of developing countries (DCs) have begun to recognise the important role of foreign direct investment (FDI) in contributing to their economic development and growth. Many of them, through explicit changes in their industrialization policies, have not only become receptive towards FDI, but are actively finding ways to court foreign investors by offering generous incentives and special privileges. Moreover, during these policy changes, many have also transformed their industrial sectors from import substitution to export-orientation. The objective of this undergraduate dissertation is to analyse the role of FDI in contributing to the economic development of both Malaysia and Thailand by examining the nature, scope, economic effects and the various issues of FDI in both countries comparatively. In Chapter 2, the theories of multinational enterprises (MNEs) and their activities are reviewed to explain their presence and growth in host countries, and to identify and evaluate the determinants of their activities in the host countries. Moreover, the role of FDI will also be examined under the framework of endogenous growth theory to understand its capability of promoting growth in DCs. In Chapter 3, using various economic findings and data from secondary sources, the impact of FDO on the economy of the DCs is reviewed to provide a broader perspective for the subsequent studies of Malaysia and Thailand. In general, although FDI is beneficial to the economic development of DCs, some effects may be detrimental to their interests in a number of ways. As a result, the overall effects of FDI on the DC's would then be dependent on their selection of trade-offs. In Chapter 4, after examining the nature and scope of FDI in both Malaysia and Thailand, it is found that the majority of the FDI into both countries is generally located within their manufacturing sectors and that this trend is intensifying over time. Geographically, the top contributors to FDI in Malaysia and Thailand are mainly from the Asian Newly Industrialising Economies, Japan, the United States and the European Community. Over the years, although both countries' governments have been successful by offering generous incentives to attract FDI, they are currently encountering serious manpower shortages, particularly of skilled labour. Thailand is further disadvantaged by various forms of infrastructure bottlenecks. Moreover, both countries also face increased competition for FDI from China and Vietnam. In Chapter 5, the economic effects of FDI on both countries is analysed comparatively and it is found to have generated a favourable economic impact in terms of exports, employment creation, labour productivity, domestic entrepreneurship and backward linkages. However, the effects of FDI on their R&D activities and the importation of technology are less promising. On the whole, despite the various shortcomings that FDI imposed on both countries, export-oriented FDI has evidently brought significant returns to both countries and will continue to contribute substantially to their economic development in the future.