The impacts of China’s FDI on employment in Thailand’s industrial sector : A dynamic VAR (vector auto regression) approach

Purpose – This study aims to analyze the effect of inward foreign direct investment (FDI) on new job creation. This study pays attention to factors interrelated to China’s FDI by using the case of Thailand. Design/methodology/approach – Using time series data from 2001 to 2014, this paper explores the driving forces and reduction potentials of employment in Thailand’s industrial sector with consideration for dynamic changes within the vector autoregression model. Findings – The results show that government expenditure plays a dominant role in increasing employment in Thailand’s industrial sector and exports plays a dominant role in decreasing employment in Thailand’s industrial sector. All variables are co-integrated and the analysis of the impulse–response function also turns out to be synchronous. Furthermore, in the short term, exports are more critical than China’s FDI in industrial sectors in reduction potentials of employment in Thailand’s industrial. Practical/implications – Policies should be devised to increase skilled labour and improve the equality of infrastructure in the country to attract more FDI into the economy and for quick adjustment purposes in case of shock to the system. Originality/value – The paper uncovers some important factors influencing employment in Thailand’s industrial sector under study and provides a guide-map for policymakers.