Trade Liberalization and Firm Performance: The Case of Thailand

Abstract

After the Asian Financial Crisis, Thailand's trade policy has been driven by the proliferation of free trade agreements (FTAs). We use firm‐level data to estimate the effects of reductions in tariffs applied to Thai imports on Thai firms. Reductions in Association of Southeast Asian Nations (ASEAN) tariffs were associated with increasing firm employment and exports, lower ASEAN‐China import tariffs were associated with increasing firm employment, while lower tariffs from the Japan‐Thailand FTA were associated with reductions in firm employment and increasing likelihood of International Organization for Standardization (ISO) certifications. FTAs were associated with a decrease in firm R&D spending. (JEL F1, F2, F6)

Non-Tariff Measures, Import Competition, and Exports

“…Our results also speak to the broader literature on trade policy on firm performance, including the pro-competitive effect of trade liberalization (Goldberg and Pavcnik (2016), Amiti and Konings (2007), Bustos (2011), Feliciano andDoytch (2020), Epifani (2003), Fontagné and Orefice (2018)). Within this literature only a few studies focus on NTMs, such as Fontagné and Orefice (2018) and Asprilla et al (2019), with the latter also recognizing that NTMs are also a competition-policy issue.…”

The Resilience of FDI to Natural Disasters through Industrial Linkages

“…Specifically, they are more likely to stay in the disaster-hit country, if local inputs are more important in multinational production or trade costs of importing foreign inputs are lower. Contrary to the warning by the Bank of Thailand, the 2011 Thailand floods did not cause long-lasting relocation and restructuring by manufacturing MNEs, perhaps because of strong industrial linkages between local and multinational firms and progressive trade liberalization (Milner et al, 2006;Feliciano and Doytch, 2020). 2 We further extend the basic model to allow for heterogeneous productivity and gradual recovery from disasters, giving similar results and yielding additional implications.…”

“…3 Among many channels through which multinationals benefit host economies, 2 Using the information on Japanese-Thailand bilateral input-output table, Milner et al (2006) find a sizable and robust association between the number of Japanese affiliates in Thailand and their linkages with Thailand's industries. Feliciano and Doytch (2020) document the recent development of Thailand's Free Trade Agreements. Using Thailand's firm-level data, they find that reductions in import tariffs improve the performance of both local and foreign-owned firms.…”

The Resilience of FDI to Natural Disasters through Industrial Linkages

“…4 Using the information on Japan-Thailand bilateral input-output table, Milner et al (2006) find a sizable and robust association between the number of Japanese affiliates in Thailand and their linkages with Thailand's industries. Feliciano and Doytch (2020) document the recent development of Thailand's Free Trade Agreements. Using Thailand's firm-level data, they find that reductions in import tariffs improve the performance of both local and foreign-owned firms.…”

“…Contrary to the warning by the Bank of Thailand, the 2011 Thailand floods did not cause long-lasting relocation and restructuring by manufacturing MNEs, perhaps because of strong industrial linkages between local and multinational firms and progressive trade liberalization (Milner et al, 2006;Feliciano and Doytch, 2020). 4 We further examine a number of extensions of the basic model including multinationals with heterogeneous productivity, gradual recovery from disasters, the role of the host country's market, endogenous sourcing patterns, and disaster risk.…”