Will manufacturing investors go to border zones? The case of central Thailand

Abstract

Purpose: The purpose of this paper is to examine effects of regional economic integration on the concentration of manufacturing firms in provinces of Thailand on the border with Cambodia. It aims to clarify the interactions between dispersion and agglomeration forces within a firm’s location choice in the presence of economic integration and thereby to explain the feasibility of the border SEZs. Design/methodology/approach: The theory of industrial clustering and New Economic Geography provides a theoretical framework to understand the locations of economic activities when regional economies are integrated. This paper employs provincial level data to calculate industry location quotients across a 10-year period from 2007 to 2017 in central Thailand and uses firm-level data from industrial censuses in 2006 and 2011 to estimate logit models for two border provinces with Cambodia and three eastern seaboard provinces. Two base models and extended models are tested to explain the persistent agglomeration of Thai firms in each manufacturing industry. Findings: The authors found a positive correlation between the agglomeration level in 2006 and the choice of firms toward the border provinces in 2011. The disaggregated analysis shows that depending on the initial level of concentration in each industry, there can be agglomeration or dispersion effects. The advantage of low trade costs and labor costs of unskilled migrant workers are not significant factors attracting firms to the border. Firms in industries with increasing returns are more likely to stay in the hub. Practical implications: The disaggregated analysis by industry provides very important implications for SEZ policy interventions. The important role of agglomeration economies limits the extent to which such policies can be successful. It would be an enormous challenge for policy makers to initiate forces which are strong enough to induce firms to relocate away from areas with high agglomerations. Policy interventions with attractive incentives should be very selective to industries already have a certain degree of concentration in the provinces so as to reinforce the agglomeration effects. Originality/value: The research extends the empirical literature on SEZs by offering a unique case study of an emerging economy with a strong market foundation rather than a transitional or developed economy. It is also different from other research on SEZs when taking into account the effects of regional integration on border SEZ formation and firms’ location choices. In addition, this study employs firm-level data rather than provincial data to bring empirical insights and fill in the knowledge gap on agglomeration economies in Thailand with the presence of regional economic integration. © 2019, Emerald Publishing Limited.