Abstract:
The objective of this study is to measure gains from foreign direct investment through the direct and indirect effect on output of the manufacturing industries in Thailand. This study considers the direct effect through Horizontal FDI. Moreover, the effect of FDI, which spills over to upstream and downstream industries is considered as the indirect effect. In order to measure the impact of foreign direct investment, this study calculates three proxy variables as Horizontal FDI, Upstream FDI and Downstream FDI by using data from 9 production sectors during the period of 1996-2006 from Bank of Thailand, National Statistical Office and Office of National Economic and Social Development Board. Then we use all of these proxy variables to estimate their relationship with output based on the Cobb-Douglas production function and the Translog production function. The results show that foreign direct investment has the effect of increasing output both directly and indirectly. Upstream FDI is the factor which has the most effect on output, followed by Downstream FDI and Horizontal FDI respectively. Finally, this paper concludes that in order to study gain from FDI, it is necessary to focus on both direct and indirect effect on output since this study finds that both significant effects on increasing output.