Misallocation in Thai Manufacturing: Trends, Patterns and Its Determinants

Abstract

The main purpose of this paper is to measure the level of misallocation of industries in Thai manufacturing from 1997 to 2017 with a view to formulate prudential policy to promote productivity improvement. A measurement of misallocation proposed in [1] is used. Estimates of misallocation over the past two decades are further used in our balanced panel-data econometric analysis to identify its key determinants. The key findings suggest that most of industries experienced a decrease in misallocation over the past two decades. Nonetheless, the magnitude of changes varies across industries. The paneldata econometric analysis suggests that the changes of misallocation is negatively and significantly related to export output and import penetration ratios. Misallocation in industries in which a number of firms are export and/or import tends to be lower. Interestingly, the role of multinational enterprises can lower misallocation but taking place in more liberal trade environment. The main policy inference, therefore, is in favor of further trade liberalization to encourage firms to globally integrated and entice multinational enterprises.