Abstract

Thailand’s international trade, exports in particular, expanded considerably after the major policy changes in 1990. According to this expansion, there was also a significant increase in intra-industry trade even though the major characteristic of Thailand trade is still inter-industry. However, intra-industry trade is hypothesized to reduce adjustment costs due to trade expansion and changes in trade compared to inter-industry trade. The main purpose of this paper is to examine the effects of increased Intra-Industry Trade (IIT) on the labor market adjustment cost, in view of the changes in Thailand’s pattern of trade over the post-1990 period. The study is focused on the hypothesis that Intra-Industry Trade (IIT) expansion entails lower factor adjustment costs (Smooth Adjustment Hypothesis-SAH). A dynamic panel data approach is employed. The results suggest a negative correlation between changes in employment and Marginal Intra-Industry Trade (MIIT) and confirmation of the SAH. Given the increase in IIT as a proportion of Thailand’s overall trade during the period under review, the adjustment in labor markets in the form of reduced employment from trade liberalization at that time is likely to have been less than that would have otherwise been expected.

Highlights

  • At present, the pattern of international trade has changed over time due to globalization

  • Trade liberalization is lower if the nature of trade expansion is intra-industry trade (IIT) rather than inter-industry trade

  • We find the expected sign which indicates that the higher level of Marginal Intra-Industry Trade (MIIT) causes lower adjustment costs

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Summary

Introduction

The pattern of international trade has changed over time due to globalization. This change has been driven by the transformation of international trade from traditional trade to more free trade. Trade liberalization is lower if the nature of trade expansion is intra-industry trade (IIT) rather than inter-industry trade. These changes will reshape the pattern of trade and reallocation of resources in the country and in the world. The statistics from the Bank of Thailand indicated that the volume of total trade (exports plus imports) had increased over time since 1979. The major international trade partners for Thailand are the ASEAN countries members, the European (EU) countries, Japan, the United States of America, and Chi-

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