TRENDS AND IMPACTS OF FOREIGN INVESTMENT IN DEVELOPING COUNTRY AGRICULTURE

:
Foreign investment and agricultural
development in Thailand 1
1. Introduction
Foreign direct investment (FDI) has played a
pivotal role in the economic development of
Thailand. In Thailand, FDI has grown rapidly
with a clear shift in investment flows from
import-substitution towards export-orientation,
concentrating mainly in the manufacturing sector.
Empirical studies have been largely concentrated
on the role of FDI in this sector. Although
Thailand is an agriculture-based economy and
foreign investment in agricultural production has
existed for a long time, the value of international
investment in the agricultural sector is very small
and the number of studies investigating the role
of FDI in this sector is limited (Netayarak, 2008;
Sattaphon, 2006). This chapter has two main
objectives: first, to analyse the extent, nature
and impact of international investment in the
agricultural sector, and second, to analyse the
policies, legislation and institutions affecting the
international investment.
This chapter is divided into six sections
including this introduction. The second section
briefly reviews the background of Thai agriculture
and explains the definitions of FDI statistics
employed in this study. The third section describes
policies, legislations and institutions affecting FDI
in Thailand. The fourth section covers the analysis
of FDI in Thai agriculture, with an emphasis on
the extent and nature of FDI. A fifth section
provides an analysis of the impacts of FDI with
emphasis on the agricultural sector. A final section
offers conclusions and policy recommendations.
1 This chapter is based on an original research report
produced for FAO by Waleerat Suphannachart, Faculty of
Economics, Kasetsart University and Nipawan Thirawat,
Independent Researcher.
2. Background of Thai agriculture
and FDI data in Thailand
2.1 Overview of agricultural
development in Thailand
Thailand has always had an agriculture-based
economy in which the agricultural sector
has played a crucial role in overall economic
development. The agricultural sector was the
economy’s “engine of growth” in the 1960s
and 1970s. 2 This leading role was superseded
by the manufacturing sector in the 1980s. Since
then the agricultural shares in overall GDP have
declined. The decline in agricultural growth
was in line with structural change toward an
industrialized economy as well as many external
factors, particularly a worldwide depression in
major agricultural product prices (Poapongsakorn,
2006). Despite the declining shares of agricultural
GDP, the agricultural sector continues to
contribute to overall economic development by
being an important source of rural income and
export earnings. 3 It also provides raw materials for
agribusiness and ensures household food security.
The agricultural sector still managed to grow at
an average growth rate of about 3 percent per
year over the entire period of 1970-2008.
Within the agricultural sector, crop production
has long occupied the largest share of total
agricultural output, followed by fisheries,
2 The main driving force was attributable to expansion of
the land frontier and heavy public investment in roads
and irrigation (Poapongsakorn, 2006).
3 Thailand is a major net agricultural exporter, particularly
of rice, rubber, cassava, sugar and poultry products
(Warr, 2008). The majority of poor people in Thailand
reside in rural areas and are directly involved in
agricultural production (Warr, 2004).
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