Industrial policy and the development of the automotive industry in Thailand♦

Abstract

It has been argued that restrictions on industrial policy implemented under World Trade Organization rules in the 2000s have greatly reduced the ‘policy space’ in which developing countries can promote industrialisation. This paper examines the case of Thailand's policies in developing one of the most successful automotive industries in the Southeast Asian region. We show that Thailand's use of local content requirements, later abolished under WTO rules, helped promote local suppliers and did not deter foreign investors. Substantial tariff protection of vehicles and components production did not deter exports, and has continued to the present, even under liberalisation policies. Supplementing tariff protection by various fiscal means to promote product champions in the automotive industry, Thailand has succeeded in retaining substantial policy freedom.