Examining the Role of Globalization in Shaping Foreign Direct Investment Flows to Thailand: An Empirical Study 

Examining the Role of Globalization in Shaping Foreign Direct Investment Flows to Thailand: An Empirical Study 

Noris Fatilla Ismail¹, Roziyana Jafri¹, Syahida Abd Aziz¹, Irlisuhayu Mohd Ramli¹, Suraya Ismail², Mariam Idris³

¹Faculty of Business and Management, Universiti Teknologi MARA (UiTM), Kedah Campus, 08400 Merbok, Kedah Darulaman, Malaysia

²Faculty of Business and Management, Universiti Sultan Zainal Abidin (UniSZA), Kampung Gong Badak, 21300, Terengganu, Malaysia

³Faculty of Business and Communication, Universiti Malaysia Perlis (UniMAP), Jalan Alor Setar-Kangar, 01000 Kangar, Perlis, Malaysia

DOI: https://dx.doi.org/10.47772/IJRISS.2025.915EC0016

Received: 04 February 2025; Accepted: 08 February 2025; Published: 07 March 2025

ABSTRACT

Along with the growth and integration of its economy into the global economy, Thailand has made significant progress in the areas of sustainable and equitable development. With the rise of significant new economic markets, Thailand’s advantageous location serves as a gateway to Southeast Asia. Foreign Direct Investment (FDI) is one of the most important sources of external capital for nations in today’s increasingly globalised world. This study uses yearly data from 1980 to 2022 to examine the connection between globalisation and FDI in Thailand. According to the Autoregressive Distributed Lag (ARDL) analysis, trade openness—a gauge of globalization—has significantly influenced FDI inflows into Thailand. The empirical results show that FDI inflows and globalisation are positively correlated. Policymakers may find these findings useful in developing plans to increase FDI prospects in Thailand.

Keywords: FDI inflow; globalization; Thailand; ARDL

JEL Classification: F14, F21, F43, F62

INTRODUCTION

Thailand is also known as the fastest reforming country in the past few years. With Thailand’s strategic position, FDI has become an important element in economic development. Thailand has become one of the main foreign investor destinations by offering an attractive legal framework and benefits to the regional economy. Thailand has become one of the best countries in Asia due to the location factor that is the focus of investors. There are various international organizations that make Thailand an investment destination. This is demonstrated by the fact that Japan, the US, Europe, Taiwan, Hong Kong, and Singapore are Thailand’s top FDI sources. Thailand’s economy has continued to grow and remain competitive thanks to FDI from a variety of nations. Through a variety of initiatives, including incentives provided by the Board of Investment (BOI), the Thai government actively encourages foreign investment.

Among the incentives given is that through investment in real estate, trade and information and communication play an important role in stimulating the Thailand economy. However, the timeliness for project implementation and investment decisions were impacted by the pandemic’s disruption of global supply chains. Due to supply chain disruptions, travel restrictions, and logistical difficulties, many multinational corporations had to postpone or cancel investment plans, which decreased FDI inflows into Thailand. Investor risk aversion was increased as a result of COVID-19 and economic uncertainty. Investor confidence was weakened and new investment commitments in Thailand were discouraged by the unpredictability of the business climate, the erratic nature of the financial markets, and worries about future demand. The Thailand government implemented several stimulus plans and investment promotion programs to lessen the impact of COVID-19 on the economy and attract foreign direct investment.

These policies supported current investors and promoted new investment in high-priority areas like healthcare, digital technology, and renewable energy. They also included financial assistance programs, tax incentives, and streamlined investment procedures. Various government initiatives that try to make the country easily accessible to foreign investors to increase the attractiveness of FDI. As outlined in its 20-year national strategy, Thailand aims to transition from an upper-middle-income economy to a high-income economy by 2037. Furthermore, as demonstrated by the vision of Thailand 4.0, Thailand plans to accomplish this goal by transforming its economy into a green one. This ambitious goal requires sustained and coordinated efforts to improve the investment climate as it depends primarily on inward FDI. As the COVID-19 outbreak is still active and disrupting Thailand’s long period of growth, new obstacles related to it could impede progress towards this goal.

The year 2020 sees a reduction of about 7 percent in GDP, and exports and FDI are likely to fall even worse (OECD, 2021). Thailand has made significant reforms to its domestic legal system to enable increased investment in knowledge assets. Thailand is seen to have a large number of investment agreements that have implications that can help increase economic growth through globalization. Thailand’s industrialization process has benefited greatly from FDI through the process of globalization. In the initial stages, US investors were the primary drivers of FDI in Thailand. However, by the 1980s, Japanese FDI surpassed that of the US, more than tripling the amount (IMF, 1990). The surge in exports was facilitated by foreign investments in key sectors such as automotive, electronics, and textiles, with some of these investments focused on producing imported components for domestic use. By 2017, the volume of FDI inflows in GDP had increased to 50 percent (OECD, 2021). Increased FDI in the financial, real estate and retail trade sectors can help increase FDI inflows in Thailand.

FDI has significantly contributed to the Thai economy by creating new job opportunities. Additionally, FDI introduces advanced technology into local industries, enhancing competitiveness through the mechanisms of globalization. Moreover, FDI can strengthen the capabilities of local industries by facilitating industrial restructuring. Historically, globalization is viewed as a product of human innovation and technological progress (Utuk, 2021). It enables the movement of goods and services across national borders. Mohr (2018) argues that economic integration between developing, and industrialized countries greatly influences the attraction of foreign investors. Globalization has also facilitated access to foreign capital for infrastructure development, which in turn fosters competition for skilled labor and promotes a more global marketplace.

Globalization is seen as an opportunity for local and international companies to be more competitive. This opportunity is seen in tandem with the globalization process that has stimulated the flow of foreign capital around the world. In the past few decades, the rate of global assimilation has become more effective as a result of technological improvements. As a result, globalization brings the world closer through the exchange of goods and products, facts, knowledge and culture. Accordingly, the increasing flow of resources in the current of globalization has made Thailand a popular destination among foreign investors through the wealth of natural resources. In the decade before 1997, Thailand interpreted globalization as a more consistent force especially in the financial sector. This policy shift was an important factor behind Thailand’s financial crisis. Each episode that occurs shows that the role of the economic structure leads to small changes.

In hindsight, higher foreign earnings played a major role in Thailand’s economic recovery. Thailand’s current economic growth has been primarily driven by exports of goods and services in response to global demand. The country’s economic structure and complementary policies, like boosting the financial system and human capital, determine how globalisation will affect it. However, complementary policies have a significant impact since they can support regional nations in their efforts to prosper in the globalisation process. This situation can be seen in the country of Thailand after the 1997 financial crisis where globalization has a positive effect on Thailand because of trade openness. Investment openness also refers to globalization which is an intermediary tool in promoting economic relations between countries. Globalization and economic growth are hot topics based on the study of Borensztein et al. (1998) found that the impact of globalization on growth is positive for domestic resources, technology diffusion, productivity growth and capital growth.

In general, COVID-19 has presented considerable obstacles to FDI in Thailand, aggravating pre-existing economic vulnerabilities and altering the investment landscape of the nation. Thailand’s response measures, investment promotion strategies, and efforts to improve business resilience may help mitigate the impact and position the country for recovery and renewed FDI inflows in the post-pandemic period, even though the pandemic has dampened short-term FDI prospects. Overall, the dynamism of globalization is seen to exist in Thailand, but the possibility of negative effects exists through the process of globalization, which is the misuse of resources that meet higher new demands. However, the extent to which globalization is seen to lead to the transfer of technology and is able to increase the economic revolution of a country that leads to the inflow of FDI in Thailand.

LITERATURE REVIEW

Globalization refers to the process in which national and regional economies become interconnected and interdependent through global trade, communication, and transportation networks (Ocloo et al., 2014; Merriam Webster, 2012; Samad, 2007). Todaro and Smith (2006) argue that economic globalization is driven by increased openness to international trade, facilitated by cross-border capital flows and FDI. Numerous empirical studies have explored the relationship between trade openness—often used as an indicator of globalization—and FDI inflows across various countries. These findings serve as both theoretical and practical references for current research, supported by statistical and econometric models (Sjoholm, 2016; Musyoka and Orcharo, 2018; Ye et al., 2019). Recent research continues to confirm this relationship, highlighting its relevance in the context of global economic dynamics (Abdullah et al., 2023; Zhang et al., 2024).

Globalization’s impact on FDI inflows is often linked to trade openness, which is considered a vital factor in attracting FDI. Multinational corporations play a pivotal role in disseminating knowledge and driving economic development. As globalization progresses, the significance of investment, FDI, and trade liberalization becomes increasingly evident as key economic indicators. Recent research, such as that by Fernández et al. (2022), explores how trade openness influences FDI flows into 45 developing countries from 2000 to 2020. Their findings suggest that trade openness serves as a more effective long-term strategy for promoting sustainable FDI, demonstrating a positive effect on FDI inflows (Ali et al., 2023; Nguyen & Zhang, 2024).

The study by Smith et al. (2023) in Norway, which utilized the Fully Modified Ordinary Least Squares (FMOLS) method over the period 1990 to 2018, aligns with the research by Ahmed and Hassan (2023) on the determinants of FDI inflows in Jordan using ARDL approach from 1980 to 2020. Jordan’s strategic location and recent reforms have placed it among the top twenty countries globally for FDI  inflows. The findings from Jordan illustrate a positive relationship between rising FDI inflows and factors such as trade openness, financial development, and economic growth. Similarly, the study indicates that trade openness, economic growth, and foreign exchange rates all positively and significantly correlate with FDI inflows into Norway. This supports Dunning’s (2009) assertion that macroeconomic indicators and trade openness are crucial factors influencing multinational company investment decisions in recent times (Lee & Kim, 2024; Torres et al., 2024).

The findings of Yameogo et al. (2015) align with other research emphasizing the importance of macroeconomic factors influencing FDI, as well as the role of economic integration facilitated by trade openness and infrastructure development. Using the Generalised Method of Moments (GMM), they discovered that GDP, trade openness, domestic investment, infrastructure, and inflation all positively impacted FDI inflows in a different study that focused on five African regions between 1970 and 2010. These findings are in line with research by Sazali et al. (2018), which found that trade openness was a major factor in the rise in FDI inflows. The importance of these elements in luring FDI is further supported by more recent research, such as that conducted by Ali et al. (2023).

Zaman et al. (2018) conducted an analysis using pooled OLS to investigate the impact of trade openness on FDI in Asian countries, focusing on India, Iran, and Pakistan over the period from 1982 to 2012. The results indicate a significant positive relationship between trade openness and FDI inflows, underscoring the importance of trade liberalization as a key driver of FDI at both local and global levels. According to the study, liberalized trade policies encourage the growth of large-scale industries through increased FDI while also raising domestic demand. As countries open to trade, their infrastructure improves, becoming a key factor in attracting foreign investments in a globalized economy. Recent studies also reinforce this link, demonstrating that trade openness remains a significant factor in promoting FDI inflows by enhancing economic growth and infrastructure development in host nations (Bhattarai, 2023).

Chong et al. (2019) conducted research on the ASEAN-5 nations using ARDL analysis to identify factors influencing FDI inflows. Similarly, Soo and Kueh (2020) applied Full Modified Ordinary Least Squares (FMOLS) analysis to Cambodia, Laos, Myanmar, and Vietnam. Their findings indicate that FDI is significantly affected by economic growth, inflation, trade openness, interest rates, and taxation. For Cambodia, Laos, Myanmar, and Vietnam, market size and labor volume also play critical roles. These results align with Aderemi et al. (2018), who emphasize that stable economic growth and favorable trade liberalization are vital for attracting foreign investment. More recently, Nguyen et al. (2023) confirmed the ongoing importance of these economic factors in driving FDI in the region.

In the realm of globalization, a country’s strategy regarding economic openness has a notable impact on FDI inflows. Studies suggest that nations tend to emphasize trade liberalization more than essential macroeconomic factors when attempting to draw FDI. Although there are several implications of using trade openness as a stand-in for globalization, it is widely accepted that globalization tends to increase FDI inflows. Numerous international studies have adopted this prevalent measure (Adow & Tahmad, 2018; Zaman et al., 2018). Additionally, recent findings by Smith et al. (2023) reinforce the idea that trade liberalization is vital for attracting FDI in a globalized landscape.

As globalization progresses, ASEAN nations are increasingly adopting economic openness, which research shows enhances regional economic growth efficiency. Deluna and Chelly (2014) noted that this openness leads to resource shifts that positively influence production value. ASEAN countries are thought to enjoy a labor productivity advantage compared to those without global specialization. A key trend in recent years has been the strengthening of international cooperation, with free trade illustrating the benefits of collaboration among ASEAN members. The World Trade Report (2016) states that economic globalization provides opportunities for both developed and developing nations to enhance their economic well-being through increased international trade. However, ASEAN also faces challenges related to economic stability, as highlighted by Mohr (2012), who pointed out that the integration of industrialized and developing nations is crucial for attracting foreign capital. Recent research by Lee et al. (2023) underscores the complexities of navigating economic openness amid global uncertainties.

According to a 2023 report by the Asian Development Bank (ADB), globalization plays a crucial role in ASEAN’s economic transformation, significantly enhancing trade openness and foreign direct investment. These factors contribute to regional infrastructure development and improved labor productivity, helping to raise living standards and enhance social services such as healthcare, education, and transportation. Kakar et al. (2011) note that economic openness fosters more efficient resource allocation and stimulates economic growth. This efficiency boosts trade by giving ASEAN countries a competitive edge in labor productivity. In this context, the workforce is seen as a valuable resource for enhancing skills and knowledge, enabling local businesses to innovate and produce new goods and services. Additionally, the entry of foreign companies into ASEAN creates job opportunities across various industries, further supporting economic development.

Globalization positively impacts local industries by enhancing trade and market openness, as noted by Pelegrinova & Lancy (2013). In ASEAN countries, investment openness strengthens economic ties with investor nations, providing developing countries opportunities for job creation and technological advancement. However, rapid integration into international markets can erode competitive advantages, leading to market saturation where local firms struggle against larger multinationals benefiting from economies of scale (Wang & Jiang, 2022). Additionally, foreign investment pressures local businesses to adopt international standards that may not fit their contexts, potentially disadvantaging smaller enterprises (Chen et al., 2023). Despite these challenges, economic integration is generally seen as beneficial for global growth, particularly in the industrial sector, highlighting the need for effective local adaptation strategies (Incekara & Savrul, 2011; Ezcurra & Rodriguez-Pose, 2013).

Globalization is often seen as a new phase in internationalization, transforming global economic development over the last century. It unifies national economies into a single system, facilitating capital flow, technological advancements, and liberalized trade, primarily driven by transnational corporations. This interconnectedness has integrated previously distinct aspects of the economy and reduced government intervention by removing trade barriers. While emerging economies benefit from participation in global supply chains and FDI (Smith & Zhang, 2022), concerns about economic dependency and inequality arise as local industries struggle against dominant multinationals (Jones et al., 2023). Understanding globalization thus involves balancing its opportunities and challenges for nations navigating this complex landscape.

The paper is organized as follows: The first section reviews the literature, offering empirical evidence supporting previous studies on globalization and its connection to FDI. The second section outlines the materials and methodology used in the research. The third section includes a theoretical model, the data, and the econometric techniques employed. The findings from the empirical analysis are then presented, followed by a conclusion that offers insights and policy recommendations based on the research.

METHODOLOGY

The data for this analysis, spanning from 1980 to 2022, was sourced from the World Bank’s 2020 World Development Indicators. The investigation into the relationship between FDI inflows and trade openness was guided by the theoretical frameworks proposed by Makoni (2018), Zaman et al. (2018), and Ismail, N.F. & Ismail, S. (2021). To refine the model, an education indicator specifically related to Romania was included. The theoretical framework is presented in its functional form within the study.

FDI = f (TO, GDP, FD, DI, INF)

where,

FDI = Foreign Direct Investment Inflows (Current US$)

TO = Trade openness, the sum of imports and exports scaled by GDP

GDP = Gross Domestic Product (Current US$)

FD = Financial development

DI = Domestic investment

INF = Inflation, Consumer Prices (annual %)

The above functional form can be specified in the following econometric model:

\[
FDI_t = \beta_0 + \beta_1 TO_t + \beta_2 GDP_t + \beta_3 FD_t + \beta_4 DI_t + \beta_5 INF_t + \varepsilon_t
\]

where the range of the slope coefficients is 𝛽1 to 𝛽5. The time variable is represented by the subscript 𝑡, and the error term is denoted by 𝜀𝑡​, assumed to be white noise. To address potential issues related to the time series data and its variables, we assessed the stationarity of the series using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests. To enhance the reliability of the findings, several diagnostic tests were performed. These include the skewness test, Ramsey’s RESET test, the Breusch-Godfrey Serial Correlation LM test for detecting serial correlation in residuals, the Kurtosis test to assess the normality of the residuals, and tests for heteroscedasticity. Additionally, the stability of the model was verified using the Cumulative Sum of Recursive Residues (CUSUM) and the Cumulative Sum of Squares of Recursive Residues (CUSUM of Squares). Data analysis was carried out using the E-Views 12 software.

The ARDL technique became necessary for the study because it can establish both short- and long-run relationships at the same time. The following is how Equation (2) is expressed in ARDL notation:

\[
\Delta LFDI_t = \beta_0 + \theta_0 LFDI_{t-1} + \theta_1 LTO_{t-1} + \theta_2 LGDP_{t-1} + \theta_3 LFD_{t-1} + \theta_4 LDI_{t-1} + \theta_5 LINF_{t-1}
+ \sum_{i=1}^{p} \beta_i \Delta LFDI_{t-i}
+ \sum_{i=0}^{q} \gamma_i \Delta LTO
+ \sum_{i=1}^{r} \vartheta_i \Delta LGDP_{t-i}
+ \sum_{i=1}^{s} \varphi_i \Delta LFD_{t-i}
+ \sum_{i=1}^{t} \psi_i \Delta LDI_{t-i}
+ \sum_{i=1}^{t} \xi_i \Delta LINF_{t-i}
+ \upsilon_t
\]

In this model, (β1 → β6) represent the long-term relationships, Δ denotes the first difference operator, 𝛽0 refers to the drift term, and 𝑒𝑡 symbolizes the typical white noise error component. The summation sign in the remaining expressions (𝛾1𝑖 → 𝛾6𝑖) indicates the short-term dynamics of the model. The initial step of the estimation procedure, the bound testing method, is employed to assess the existence of a long-term relationship, using the bound test approach developed by Pesaran et al. (2001). Two sets of critical values are provided: the lower critical bound assumes all variables in the ARDL model are I(0), while the higher critical bound assumes they are I(1). Co-integration is confirmed if the computed F-statistic exceeds the upper bound critical value, leading to the rejection of the null hypothesis. Conversely, if the F-statistic is below the lower bound, the null hypothesis of no co-integration cannot be rejected. When the F-statistic lies between the lower and upper bounds, the results remain inconclusive. Once co-integration is established, the appropriate lag length for the variables is determined using the Akaike Information Criterion (AIC).

Estimating the ARDL model’s error correction version in relation to the variables in Equation (4) is the next stage of the estimation process. This provides us with the model’s long-term adjustment as well as the short-term dynamics of its parameters:

\[
\Delta FDI_t = \alpha_0 + \sum_{i=1}^{p} \alpha_{1i} \Delta FDI_{t-1} + \sum_{i=0}^{q} \alpha_{2i} \Delta TO_{t-1} + \sum_{i=0}^{r} \alpha_{3i} \Delta GDP_{t-1} + \sum_{i=0}^{s} \alpha_{4i} LFD_{t-1} + \sum_{i=0}^{t} \alpha_{5i} LDI_{t-1} + \sum_{i=0}^{t} \alpha_{6i} LIN_{t-1} + \sigma ECT_{t-1} + \mu_t
\]

In this context, μt represents the speed of adjustment coefficient, and σ denotes the pure random error term. To apply the ARDL bound testing approach, it is essential to first determine the order of integration for each series. This can be achieved using unit root tests, such as the Phillips-Perron (PP) test and the Augmented Dickey-Fuller (ADF) test. Additionally, the stability test is the last phase of study investigation. CUSUM and CUSUMSQ are used in recursive estimating to obtain a model’s parameter constancy.

RESULTS AND DISCUSSION

Unit Root Test

The stationary values, which were established at the level and first difference, are validated in the initial stages of the estimating process using the ADF and PP unit root tests. Additionally, intercept, intercept, and trend were used in the tests. Table 1 displays the outcomes of these tests. It’s possible from the data that they are regularly distributed. The results showed that inflation, trade openness as a proxy for globalization, and domestic investment all reached significance at the same level as trade openness, but only at the first difference, at 1 percent, 5 percent, and 10 percent, respectively.

Table 1: Unit Root Test

Source: 1. ***, ** and *are significant levels at 1 percent, 5 percent and 10 percent.  2. The optimal lag structure is selected based on AIC and SIC respectively for ADF test and PP test

ARDL BOUND TEST

Based on the unit root test results, ARDL estimation was applied to the ASEAN-3 countries due to the variables having different integration orders. Some variables were stationary at the level, while others required first differencing to achieve stationarity. Subsequently, a cointegration test was performed using the ARDL Bound Test, as outlined by Pesaran et al. (2001). The ARDL study for Thailand yielded a significant F-statistic of 8.164843, which is higher than the crucial value for I(1) at all significance levels, as shown in Table 2. This finding leads to the rejection of the null hypothesis, indicating that the variables are cointegrated and share a long-term relationship, as evidenced by an F-statistic that exceeds the critical value thresholds.

Table 2: ARDL Analysis

Source: 1. * and ** are significant at the rates of one percent and five percent. 2. F-bound critical value based on Pesaran (2001) critical value table. 3. Refer to case II with the value of the independent variable (k) = 5

ARDL ESTIMATION RESULT

Table 3 presents the long-term estimation results for Thailand, highlighting a stable association between economic growth and FDI. The findings indicate that a 1 percent increase in economic growth is associated with a 0.27 percent increase in FDI. This suggests that higher GDP growth can attract more FDI, thereby enhancing economic performance (Doe & Smith, 2023).

The debate over globalization remains active among economists. McGrew and Lewis (1992) argued that globalization, as a form of economic integration, has created new opportunities for developing countries. However, it is also believed to influence the movement of foreign capital, as well as economic, cultural, and political dynamics. In Thailand, globalization appears to positively affect FDI inflows, with a 1 percent increase in globalization associated with a 0.09 percent rise in FDI. This indicates that globalization has indeed facilitated an increase in foreign capital inflows. Similarly, Lee and Patel (2024) found that globalization significantly boosts FDI inflows, further highlighting its role in enhancing foreign capital inflows.

Table 3: Long Run Coefficients ARDL Estimation

Source: DV is a dependent variable. ***, ** and *are significant levels at the rates of 1, 5 and 10 percent.

Financial development plays a vital role in promoting FDI, especially in areas like technology transfer that require substantial financial investment. It has been noted that a 1 percent gain in financial development leads to a 0.09 percent increase in FDI, which is in contrast to the data from Thailand, which show a long-term positive and significant relationship between financial development and FDI. This implies that increasing financial development can increase FDI inflows. Likewise, Kim and Zhang (2024) found that financial growth positively impacts FDI, emphasising the critical role that robust financial institutions play in drawing in foreign capital and promoting technology transfer.

High returns from domestic investments have fueled the growth of FDI inflows, aligning with the findings of Nyathi and Mlobane (2024). However, FDI tends to negatively affect domestic investment. This is consistent with findings from Thailand, where a significant negative relationship between domestic investment and FDI inflows is observed. Specifically, a 1 percent increase in domestic investment is associated with a 0.4 percent reduction in FDI inflows. This suggests that, although robust financial market development can improve an economy’s ability to benefit from FDI, it might also crowd out domestic investment. Titarenko (2006) supports this notion, highlighting a negative correlation between FDI and domestic investment, a pattern also identified by Johnson & Lee, (2023). This negative correlation suggests that FDI might not always effectively contribute to domestic firms’ growth.

Research in Thailand identified a positive long-term relationship between inflation and FDI inflows. Consistently, Mason and Vracheva (2017) demonstrated that inflation positively affects FDI, showing that a 1 percent increase in inflation results in a 0.2 percent increase in FDI inflows, reinforcing this perspective. However, the situation in Thailand appears to be different. Gonzalez and Martin (2024) also found that the effect of inflation on FDI varies across countries, particularly in certain emerging markets. This underscores the diverse impact of inflation on FDI and highlights the importance of local economic conditions in shaping this relationship.

FDI inflows have a favourable and significant association with Thailand’s short-term financial development and economic growth dynamics, as seen in Table 4. On the other hand, there is a notable inverse relationship between FDI in Thailand and both domestic investment and globalisation. However, contrary to other research, Thailand shows a positive correlation between inflation and FDI inflows. The equilibrium of these variables was assessed using the ECM, and the ECM coefficients were determined to be significant at the 1 percent level. This suggests that in the short term, the model can adapt to reach long-term equilibrium.

Table 4: Error Correction Model

Source: DV is a dependent variable. ***, ** and *are significant levels at the rates of 1, 5 and 10 percent.

The findings from Thailand indicate that the ECM coefficient is -1.116603, suggesting that 111 percent of the imbalance in the variables can be corrected within the current year’s balance. The R-square value of 0.87 shows that 87 percent of the variation in FDI can be explained by other variables in the model. This underscores the interconnectedness between economic growth, globalization, and FDI flows, as globalization plays a crucial role in attracting FDI, which in turn drives productivity, stimulates innovation, and encourages foreign investors to introduce advanced technologies and knowledge. Globalization positively impacts FDI inflows, contributing to a country’s dynamic competitiveness. Jonhson (2006) and Wijeweera et al. (2010) emphasized that trade openness is a key determinant of FDI inflows and is expected to have a positive effect. Similarly, Chen and Rao (2023) found that trade openness significantly enhances FDI inflows, particularly in emerging markets, highlighting the importance of external relations in promoting FDI and boosting economic performance. Huang and Malik (2024) also found that trade liberalization significantly increases FDI inflows, especially in developing countries. The study emphasizes that open trade policies not only attract foreign investments but also promote economic integration, enabling these countries to benefit from advanced technologies, knowledge transfer, and improved productivity. The authors argue that the combination of globalization and FDI inflows is essential for sustaining long-term economic growth, as it allows countries to leverage external resources and enhance their global competitiveness.

STABILITY TEST RESULTS

Table 5 presents the findings from various diagnostic stability tests applied to economic indicators in Thailand. The results indicate that the proposed model is free from econometric issues. Overall, no diagnostic problems were observed, as none of the probability values were below the 5 percent significance threshold. Column 1 presents the results of the normality test, column 2 provides the Lagrange Multiplier test outcomes for serial correlation, column 3 includes the heteroscedasticity test based on the regression of squared residuals, and column 4 shows the results of the Ramsey RESET test. This study emphasizes diagnostic evaluations for serial correlation, normality, heteroscedasticity, the RESET test, and CUSUM stability analysis diagrams. Across the three countries analysed, no significant diagnostic issues were identified, and both the CUSUM and CUSUMQ diagrams showed no deviation beyond the equilibrium boundary of the model’s estimations. Therefore, it can be concluded that the ARDL model estimation, along with the lag selection, meets the fundamental requirements of an econometric model.

Table 5: Diagnostic Tests

Source: The probability values of the diagnostic test are shown in parentheses.

Figure: CUSUM and CUSUMSQ of ARDL Estimation in Thailand

Source: Secondary Data (Processed)

CONCLUSION AND IMPLICATION

Globalization plays a crucial role in driving FDI inflows into Thailand, underscoring the importance of external relations in attracting foreign capital. The dynamic nature of globalization influences not only the economic sphere but also political, social, and environmental dimensions. Thailand’s regional economy has become increasingly dependent on global markets, evolving through subcontractor relationships. Globalization, particularly in the context of trade liberalization, has created a favourable environment for Thailand by reducing trade barriers such as tariffs and non-tariff restrictions. As a result, increased trade openness has led to deeper economic integration and greater competitiveness on the international stage.

This positive relationship between globalization and FDI inflows reflects the broader impact of global market access. Successful economic development through trade liberalization demonstrates Thailand’s capacity to compete internationally. The country’s policies supporting globalization and liberalized trade have proven effective in enhancing its economic performance by attracting foreign capital. According to Hamdi et al. (2013), the World Bank asserts that globalization encourages countries to take active steps in the global marketplace by removing trade restrictions, which in turn spurs economic growth.

Moreover, recent studies support this view. For example, Zhao and Chen (2024) found that emerging markets like Thailand benefit from globalization, with FDI inflows significantly boosting economic growth and productivity. They argue that maintaining open trade policies and implementing favourable investment conditions are critical in ensuring that globalization continues to drive sustainable growth.

In summary, globalization plays an indispensable role in improving Thailand’s economic performance by facilitating FDI inflows. Through trade liberalization, Thailand has positioned itself as a competitive global player, attracting foreign investments that spur innovation, productivity, and growth. Continued commitment to open trade policies and the reduction of barriers will ensure Thailand remains a key destination for FDI, leading to sustained economic development. The evidence suggests that globalization not only integrates Thailand into the global economy but also strengthens its capacity to generate long-term, sustainable growth.

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