Capital flows and political conflicts: Evidence from Thailand

Authors

  • Pongsak Luangaram
  • Yuthana Sethapramote

DOI:

https://doi.org/10.15355/epsj.15.2.83

Keywords:

Capital flows, foreign direct investment, foreign portfolio investment, political uncertainty, Thailand

Abstract

How do domestic political conflicts affect capital flows into Thailand? This article advances the current understanding in two ways. First, it adopts a new method for measuring political uncertainty using Thai-language newspapers over the past 20 years. Given that the nature of political conflicts is multi-faceted, these measures cover the various key components of Thai political tensions—both within and outside of parliament. Second, how different types of tensions affect capital flows are examined using a quantile regression framework—allowing an examination of effects upon the overall distribution of capital flows. The empirical results indicate that Thai political conflicts significantly and adversely affect both foreign direct investment and foreign portfolio investment at the left tails of their distribution. The results also highlight how different types of political conflicts affect capital flows in different ways. For example, uncertainty about a military coup and government measures regarding martial law or emergency decrees have a strong negative effect upon foreign direct investment flows; whereas heightened political protest and news about constitutional reform play a significant role in explaining the risk reversal of foreign portfolio investment flows.

 

References

Ahir, H., N. Bloom, and D. Furceri. (2018). “The World Uncertainty Index.” Mimeo. https://worlduncertaintyindex.com. [accessed 22 July 2020]

Alesina, A., S. Ozler, N. Roubini, and P. Swagel. 1996. “Political Instability and Economic Growth.” Journal of Economic Growth, Vol. 1, pp. 189–211. https://doi.org/10.1007/BF00138862

Azzimonti, M. 2018a. “The Politics of FDI Expropriation.” International Economic Review. Vol.59, No.2, pp. 1–32. https://doi.org/10.1111/iere.12277

Azzimonti, M. 2018b. “Partisan Conflict and Private Investment.” Journal of Monetary Economics. Vol. 93, pp. 114–131. https://doi.org/10.1016/j.jmoneco.2017.10.007

Azzimonti, M. 2019. “Does Partisan Conflict Deter FDI Inflows to the US?” Journal of International Economics. Vol. 120, pp. 162–178. https://doi.org/10.1016/j.jinteco.2019.06.001

Baker, S. R., N. Bloom, and S.J. Davis. 2016. “Measuring Economic Policy Uncertainty” Quarterly Journal of Economics. Vol. 131, No. 4, pp. 1593–1636. https://doi.org/10.1093/qje/qjw024

Baker, M., C. F. Foley, and J. Wurgler. 2009. “Multinationals as Arbitrageurs: The Effect of Stock Market Valuation on Foreign Direct Investment.” Review of Financial Studies. Vol. 22, No. 1, pp. 337–369. https://doi.org/10.1093/rfs/hhn027

Bekaert, G.,C.R. Harvey, C.T. Lundblad, and S. Siegel. 2014. “Political risk spreads.” Journal of International Business Studies. Vol.45, pp. 471–493. https://doi.org/10.1057/jibs.2014.4

Busse, M. and C. Hefeker. 2007. “Political risk, Institutional and Foreign Direct Investment.” European Journal of Political Economy. Vol.23, pp. 397–415. https://doi.org/10.1016/j.ejpoleco.2006.02.003

Cai, Y. and A. Menegaki. 2019. “FDI, Growth and Trade Partisan Conflict in the US: TVP-BVAR Approach.” Empirical Economics, pp. 1–28. https://doi.org/10.1007/s00181-019-01795-1

CEIC. 2020. www.ceicdata.com/en. [accessed 22 July 2020]

Darby, J., C. Li, and V. Muscatelli. 2004. “Political Uncertainty, Public Expenditure and Growth.” European Journal of Political Economy. Vol. 20, pp. 153–179. https://doi.org/10.1016/j.ejpoleco.2003.01.001

Dunne, J.P. and N. Tian. 2019. “Costs of Civil War and Fragile States in Africa.” Review of Development Economics. Vol.23, pp. 1220–1237. https://doi.org/10.1111/rode.12612

Faeth, I. 2009. “Determinants of Foreign Direct Investment – A Tale of Nine Theoretical Models.” Journal of Economic Surveys. Vol. 23, No.1, pp. 165–196. https://doi.org/10.1111/j.1467-6419.2008.00560.x

Hannan, A.H. 2018. “Revisiting the Determinants of Capital Flows to Emerging Market—A Survey of the Evolving Literature. IMF Working Article, No. 18/214. Washington, D.C.: International Monetary Funds. https://doi.org/10.5089/9781484378281.001

Hayakawa, K., F. Kimura, and H.H. Lee. 2012. “How does country risk matter for foreign direct investment.” ERIA discussion article series, No.3. Jarkarta: Economic Research Institute for ASEAN and East Asia.

Julio, B. and Y. Yook. 2016. “Policy Uncertainty, Irreversibility, and Cross-border Flows of Capital.” Journal of International Economics. Vol.103, pp. 13–26. https://doi.org/10.1016/j.jinteco.2016.08.004

Julio, P., R. Pinheiro–Alves, and J. Tavares. 2013. “Foreign Direct Investment and Institutional Reform: Evidence and Application to Portugal.” Portugal Economic Journal, Vol.12, pp. 215–250. https://doi.org/10.1007/s10258-013-0093-z

Luangaram, P. and Y. Sethapramote. 2018. “Economic impacts of Political Uncertainty in Thailand.” PIER Discussion Articles, No.86. Bangkok: Puey Ungphakorn Institute for Economic Research.

Nidhiprabha, B. 2017. “The Rise and Fall of Thailand’s Export-Oriented Industries. Asian Economic Articles, Vol.16, No.3, pp. 128–150. https://doi.org/10.1162/asep_a_00556

Nguyen, P.C., N.T. Binh, S.D. Thanh and C. Schinckus. 2020. “Determinants of foreign direct investment inflows: The role of economy policy uncertainty.” International Economics. Vol. 161, pp. 159–172. https://doi.org/10.1016/j.inteco.2019.11.012

Sahu, J.P. 2020. “Do Large Foreign Direct Investment Inflows Behave Differently From Smaller Inflows? Evidence from Developing Countries.” Journal of Applied Economic Research. Vol. 14, No. 1, pp. 86–106. https://doi.org/10.1177/0973801019886488

Svensson, J. 1998. “Investment, Property Rights and Political Instability: Theory and Evidence.” European Economic Review Vol. 42, pp. 1317–1341. https://doi.org/10.1016/S0014-2921(97)00081-0

World Bank. 2020a. “Foreign direct investment, net inflows (BoP, current US$).” https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD [accessed 22 July 2020]

World Bank. 2020b. “Portfolio equity, net inflows (BoP, current US$).” https://data.worldbank.org/indicator/BX.PEF.TOTL.CD.WD [accessed 22 July 2020]

Downloads

Published

2020-10-19

How to Cite

Luangaram, P., & Sethapramote, Y. (2020). Capital flows and political conflicts: Evidence from Thailand. The Economics of Peace and Security Journal, 15(2). https://doi.org/10.15355/epsj.15.2.83

Issue

Section

Articles

Similar Articles

1 2 3 4 5 6 7 8 9 10 > >> 

You may also start an advanced similarity search for this article.