Digital Thailand: Analyzing the Impact of Broadband Connectivity on Firm Productivity
Using a large dataset of almost 100,000 manufacturing establishments in Thailand, this paper studies the impact of broadband internet connectivity on firms’ total factor productivity (TFP). The author finds that, for micro-, small-, and medium-sized enterprises, broadband adoption can raise productivity by 23% to 54%. These results support the government’s policies in building the country’s broadband infrastructure. Although the results reveal substantial benefits of broadband adoption, especially for smaller-sized firms, only about 30% of firms reported adopting broadband or having any types of ICT investments. Perhaps, more could be done to encourage broadband adoptions and private ICT investments for firms of all sizes.
Insurance and Propagation in Village Networks
We study the dual role of networks in providing insurance and in propagating idiosyncratic shocks by using variation in the timing of severe shocks on health spending experienced by households in Thai villages. We find no impacts on food consumption. Smoothing is largely achieved through local gift and loan networks. However, insurance is partial for some households so they adjust their production decisions-drawing on their working capital, cutting input spending, and reducing labor hiring, hence propagating the shocks to other households. Wefind that upstream businesses close to the underinsured households in the supply chain network experience reduced local sales and increased inventories. Likewise, workers closer to the underinsured households in the labor network experience declined probability of working locally and reduced earnings. We find evidence of ex-post adjustments of these upstream households through shifting resources towards activities with lower exposure to local shocks. Our results suggest that social (village-level) gains of expanding health insurance might be higher than private (household-level) gains.
Uncovering Productivity Puzzles in Thailand: Lessons from Microdata
The Asian financial crisis in 1997 has an impact on Thailand’s productivity both in the short run and in the long run. The post-crisis productivity growth rate dropped to merely 1% per year in comparison to the pre-crisis level at 2% per year. Thus, a better understanding about the factors determining Thailand’s aggregate productivity is a key to raising Thailand’s output in the long run. Recent literature has identified resource misallocation as an important factor to explain the difference in the productivity levels between developed and developing economies. This paper uses the plant-level data to estimate the allocative efficiency and to identify the source of resource misallocation in the Thai manufacturing sector. The results suggest that the size-dependent policies could contribute to the factor misallocation and that market concentration, foreign investment, and financial deepening could help alleviate the misallocation problem at the sector level. However, R&D activities intensifies resource misallocation that calls for well-defined policies to promote knowledge spillover within industry and to reduce the frontier-laggard gap. Dynamic resource reallocation helps shore up TFP growth over the business cycle that emphasizing a set of policy to reinforce the mechanism of creative destruction.
Structural Transformation in Thailand: A Perspective Through Product Innovation
This paper examines Thailand’s economic development through the perspective of structural transformation. Building on the insight that the products that a country exports tells much about the country’s underlying capabilities, we study Thailand’s evolving product structure both at the aggregate country level as well as at the firm level. We show that over the last 30 years, the diversification of Thailand’s product structure has been impressive, with important footholds being established in many well-connected and increasingly sophisticated products. This positive overall picture, however, masks potentially serious distributional problems. The number of firms and the number of provinces that are actively engaged in and contributing materially to Thailand’s product upgrading are highly concentrated. This may be limiting the gains to the economy more broadly. We confirm the importance of existing product structures at the country, regional, and firm levels for the evolution of firms’ product structure over time. That is, the current basket of goods produced by firms, regions, and the country affect firms’ decision over which products to introduce and which ones to drop. This path-dependent nature of product innovation has important implications for policy.
Environmental Efforts and Firm Performance
In this paper, we test the prediction that environmental efforts, presenting one dimension of corporate social responsibility, are positively related to firm performance. We analyze a panel sample of non-financial firms in the Netherlands over the period 2001–2014 using two approaches: ordinary least squares regressions and two-stage least squares regressions. Our two-stage least squares regressions show that firms with higher degrees of environmental efforts have better firm performance, measured as return on assets, but have poorer firm performance, measured as return on sales. However, this relationship disappears when firm performance is measured as return on equity or stock return. Our analysis further reveals that better firm performance does not necessarily lead to a disclosure of a firm’s environmental efforts. We find that larger firms are more inclined to report the environmental efforts than smaller firms. Neither prior firm performance nor variation in firm performance moderates the effect of environmental efforts on firm performance.
Multi-Firm Entrepreneurship and Financial Frictions
An entrepreneur’s ability to save is crucial to mitigating aggregate productivity losses caused by underdevelopedfinancial markets. Previous studies of this mechanism assume that an entrepreneur’s savings come from income generated by only onefirm. In contrast, this paper uses a large, novel dataset from Thailand and, using a legal mandate that Thai households have unique surnames, documents a large share of entrepreneurs with income from multiplefirms. They can therefore accumulate wealth from various sources, allowingfinancially constrained firms that are owned by multi-firm entrepreneurs to grow faster and survive longer than those owned by single-firm entrepreneurs. Motivated by these facts, I develop a tractable model of multi-firm entrepreneurship in the presence of financial frictions and study its impact on aggregate productivity and the allocation of capital. After calibrating to match the salient features of the Thai data, I find that the aggregate productivity loss due tofinancial frictions would rise from 7% to 21% if entrepreneurs could not own multiple firms.
Firm-level Perspective of Thailand’s Low Investment Puzzle
Private investment in Thailand has been standing at a low level since the aftermath of the Asian Financial Crisis until present. Using firm-level data of virtually all registered firms in Thailand during 2001-2013, this paper finds that more than 60 percent of Thai firms have been undertaken negative net investment (invested at a rate slower than the depreciation rate) each year. Our regression results suggest that small firms and large firms have been facing different kinds of obstacles that ultimately led to persistently low investment at the aggregate level. For large firms, low or negative net investments are driven mainly by weak growth prospects and future uncertainties. For small firms, their investments are more likely hindered by supply-side constraints (lack of access to external finance) and negative net investments are driven mainly by inefficiency.
From Many to One: Minimum Wage Effects in Thailand
This article examines the effects of changing the minimum wage policy structure in Thailand, from multilevel wages set geographically to a single statutory minimum. It exploits the recent hike in the minimum wage to evaluate the effects on employment and wage distribution. We find that employment is weakly affected, with reductions in youth unskilled employment and localised downward adjustments for SMEs. Furthermore, wage distribution seems to have improved. Using an application of the Recentered Influence Function applied to provincial wage distributions, we show that wages are affected up to the 60th percentile, suggesting that minimum wage levels serve as numeraire for wage renegotiation in a Middle Income country context. The hike in the minimum has benefited workers in the 15-45th percentiles, with no discernible effects in the lowest quantiles which appear to be driven by non-compliance among microenterprises.
Risk and Return in Village Economies
This paper provides a theory-based empirical framework for understanding the risk and return on productive capital assets and their allocation across activities in an economy characterized by idiosyncratic and aggregate risk and thin formal markets for real and financial assets. We apply our framework to households running business enterprises in Thai villages with extensive networks, taking advantage of panel data: income, assets, consumption, gifts, and loans. We decompose risk and estimate the risk premia faced by households, distinguishing aggregate risk from idiosyncratic, potentially diversifiable risk. This distinction matters for estimating measures of underlying productivity and has important policy implications.
Firm Productivity in Thai Manufacturing Industries: Evidence from Firm-level Panel Data
Using firm-level panel data from the Manufacturing Industry Survey of Thailand between 1999 and 2003, this paper estimates the production function and examines the determinants of total factor productivity (TFP) for manufacturing firms in Thailand. Controlling for industry, region, and year fixed effects, production function coefficients and TFP measures are obtained through various estimation techniques including ordinary least squares (OLS), fixed effects, random effects, and the Levinsohn and Petrin (2003) for comparison. For production function estimation, the results illustrate the biases introduced in traditional TFP estimates and we discuss the performance of alternative estimators. For the determinants of TFP, the results show that firm size is associated with firm TFP, with smaller firms being more productive than larger ones. Firm age and TFP are negatively correlated, indicating that newer firms tend to exhibit higher TFP. Firms with a more skilled workforce also show a higher level of production. Moreover, firm TFP benefits from integration into world markets: foreign-owned firms and exporters have significantly higher TFP. The results further reveal that firm TFP varies with the form of organization, with private firms (in terms of legal organization) and Head-Branch typed firms (in terms of economic organization) having higher TFP. Our findings draw attention to some key areas of policy relevance in which policies promoting labor quality may have important benefits for firm TFP. Furthermore, development in the international integration of firms into world markets through their participation in export markets and attraction of foreign capital is also likely to have large payoffs in terms of TFP for Thai manufacturing.