Asian Development Experience Vol. 3: Regional Co-operation in Asia

3 The Impact of External Changes and Japan’s Role in Industrializing Thailand

50 Asian Development Experience, Vol. 3 3 The Impact of External Changes and Japan’s Role in Industrializing Thailand Somkiat Tangkitvanich and Deunden Nikomborirak 50 1. In trodu ction The fact that Japan has significantly contributed to the industrialization of Thailand can never be overstated. To begin with, Japan is one of the most important trading partners of Thailand. The value of export from Thailand to Japan in 2002 amounted to $10 billion, or about 14.5% of Thailand’s total export. The value of import from Japan to Thailand in the same year amounted to $14.8 billion, or about 23% of Thailand’s total import. In terms of investment, foreign direct investment (FDI) inflow from Japan to Thailand amounted to $620 million in 2002, second only to the flow from ASEAN. In addition to the role of the private sector, the Japanese government also plays an important role in promoting industrialization in Thailand through financial support in the forms of loans and grants as well as technical support. The assistance has contributed to both the hardware and the software sides of the Thai industries. The former includes infrastructure development while the latter includes technology transfer, laws and regulation development and institutional building. During the economic crisis, the Japanese government and private sectors also contributed in alleviating the impact of the crisis. In particular, the Japanese government had initiated a number of projects that aimed at facilitating the recovery of Thailand and other ASEAN countries, most notably the New Miyazawa Initiative. Japanese multinational companies (MNCs) injected capital into their Thai affiliates in the form of loans or equity to retain the level of employment in these firms. Organizations in the third sectors, e.g., the Japanese Overseas Development Corporation (JODC) and Association of Overseas Technical Scholarship (AOTS), also played important roles in developing human resources in Thailand after the crisis. The assistance and co-operation were highly recognized by the The Impact of External Changes and Japan’s Role in Industrializing Thailand 51 Thai government and private sectors. Indeed, the economic crisis has further strengthened the Japanese–Thai relations. In future, Thailand and Japan need to deepen their co-operation in areas of mutual benefit. Examples of such areas include human resource development and SME support. The goal of this chapter is to assess the role of Japan in the process of industrializing Thailand in the past decades and discuss some areas for future co-operation. 2. Japan ’s Roles in Th ailan d’s In du strialization du rin g 1960s–1990s In this section, we will first discuss the role of FDI in the industrialization of Thailand in general and the role of FDI from Japan in particular. This reflects our belief that FDI is the most important factor that determines the process of industrialization of Thailand. We will then discuss the other roles of Japan in promoting industrialization of Thailand at the sectoral level and its role in developing the necessary infrastructures. 2.1 FDI an d th e In du strialization of Th ailan d Since 1990s, Thailand has always been one of the preferred FDI destinations in Asia. The country ranked fifth in Asia in terms of net FDI inflow during most of the 1990s. From a historical perspective, FDI was a key factor in Thailand’s rapid economic growth before the economic crisis in 1997. As a country with political stability, few ethnic or religious conflicts, relatively cheap and hardworking labour, Thailand stood as an attractive FDI destination in Asia for MNCs, especially the Japanese manufacturers. The value of net FDI inflow to Thailand has increased twelve fold from $189 million in 1980 to $2.27 billion in 1996 (Figure 3.1). The country experienced an average economic growth rate of nearly 8% for three and a half decades until 1996. Despite the world recession in the mid-1980s, the Thai economy was able to expand at double digit rates during 1988–1990, and by over 8% per year from 1991–1995. These high growth rates were largely driven by a steady supply of inward FDI flows. Even during the post-crisis period, FDI was instrumental in the process of structural reform and economic recovery. At the sectoral level, it would not be an overstatement to conclude that FDI has been indispensable for the development of many sectors, in particular automobiles, electronics and their supporting industries. As a developing country with low technology capability, Thailand would not have been able to build up...