The role of wages, skills development and R&D on productivity: evidence from Thai manufacturing firms

Abstract

PurposeThe objectives of this study are to investigate the role of wages, skills development and R&D on the productivity of Thai manufacturing firms, using data from the 2017 Industrial Census of Thailand.Design/methodology/approachThe paper uses two-stage least squares (2SLS) to examine the role of wages, skills development and R&D, as well as other vital factors, impacting productivity as measured by labour productivity and total factor productivity.FindingsThai manufacturing firms' technology in aggregate exhibits decreasing returns to scale. Increasing wages and skills development promote the labour productivity and total factor productivity (TFP) of Thai manufacturers. R&D is also shown to be vital in promoting the labour productivity and TFP of large firms, but not small firms. Foreign direct investment (FDI) and government support can significantly increase large and medium-sized firms' labour productivity and TFP. Financially constrained firms tend to perform more productively. However, older firms, larger firms, labour supply shortages and political instability adversely affect labour productivity and TFP.Practical implicationsUpskilling and improving HRD policies could move Thailand towards a knowledge-based and high-income country in the future. Intellectual property protection should be strengthened to boost the country's R&D. The government should consider lifting restrictions on FDI to encourage international openness. The Thai Board of Investment’s promotion should target Thai manufacturing firms and FDI.Originality/valueThis study is the first to examine in detail the role of wages, skills development and R&D on the productivity of Thai firms based on the 2017 Thailand Industrial Census.