Export Performance, Foreign Ownership, and Trade Policy Regime: Evidence from Thai Manufacturing

Abstract

This paper examines the determinants of a firm’s export decision and the role of multinational corporations (MNCs) in generating export spillovers to domestically owned firms based on cross-sectional econometric analysis of the manufacturing sector in Thailand. The role of market structure in determining firms’ export decisions is also emphasized in the study. The key finding is that MNCs tend to be more export-oriented than indigenous firms and the entry of the former stimulates the latter to become involved in the production of exports, i.e., the presence of MNCs export spillovers. However, the impact of MNCs on export activity/spillovers is not automatic, but depends on the trade policy regime. A restricted trade policy, especially tariff protection, could retard the process of MNCs enhancing export spillovers and overall export activity. Competition fostered by open trade policies tend to be required if a high level of MNC participation is to be translated into higher export activity/spillovers. In addition, the negative direct effect of high tariff rates on export activity/spillovers highlights the relative importance of trade policy neutrality on firms’ export decisions and export spillovers.