TDRI urges Thailand to build technology, not just host FDI

Thailand risks becoming little more than a location rented by foreign companies unless the government reshapes its investment strategy to develop domestic technology, productivity and industrial expertise, a researcher at the Thailand Development Research Institute (TDRI) has warned.

Nopparuj Chindasombatcharoen, a TDRI research fellow, pointed to a widening gap between investment and domestic production in the second quarter of 2026.

Private investment expanded by 13.4%, but manufacturing grew by only 0.1%, while capacity utilisation fell to 57.47%, its lowest level in six years.

The investment increase was driven partly by imports of machinery and technological components rather than stronger production links with Thai factories and suppliers.

Thailand also recorded a current-account deficit of about 575 billion baht, described as a record level. Higher oil prices resulting from unrest in the Middle East contributed to the deficit, but imported machinery and technology were also important factors.

The figures indicated that new investment had yet to deliver its full benefits to domestic factories, employment and production, Nopparuj argued. 

Foreign investment operating as an enclave

Nopparuj described the imbalance as an “enclave economy”, in which foreign investors establish production bases or install advanced technology while remaining relatively disconnected from the wider domestic economy.

When important parts of the supply chain continue to depend on imports, Thailand captures only a limited share of the resulting value. Profits can be repatriated to foreign companies or their home countries, leaving Thailand primarily with downstream activities and wage income rather than stronger technological capabilities.

Thailand’s traditional investment model assumes that tax incentives designed to attract foreign direct investment will automatically produce technology transfers and connections with local businesses.

That assumption has become less reliable as the global economy has changed, Nopparuj maintained. Free trade agreements have made it easier for multinational companies to import lower-cost components from their home countries instead of sourcing them locally.

If the model remains unchanged, Thailand could become merely a location for foreign factories, distribution centres and digital infrastructure without achieving a comparable increase in domestic technology or value creation.

Moving beyond low-cost assembly

Thailand will struggle to escape the middle-income trap if it continues to rely mainly on final-stage assembly work and foreign production bases, Nopparuj warned.

Sustainable increases in income per person will require higher productivity, stronger domestic capabilities and a larger share of value being created inside Thailand.

The country must therefore move away from competing chiefly through low labour costs and towards producing higher-value goods and services supported by more advanced technology.

TDRI proposed a new industrial policy built around three elements

1. Select strategic positions in global supply chains

The government should stop setting symbolic ambitions, such as declaring Thailand a regional hub, without identifying where the country possesses a clear competitive advantage.

It should instead select specific positions in global supply chains where Thai industries can develop specialist capabilities and compete internationally.

Thailand does not need to own every type of technology or handle every production stage. It should identify industries and technologies in which domestic expertise can be developed into a global advantage.

In semiconductors, for example, Thailand could build on its existing electronics industry by moving into advanced assembly and testing as well as photonics technology.

Businesses and workers in slowing traditional industries should also be helped to transfer their skills into higher-value sectors. Capabilities from the internal-combustion vehicle and plastics industries could be redirected towards medical-equipment components, rail systems and defence-related manufacturing.

2. Align government policy across agencies

Ministries and state agencies must stop working separately and instead design an integrated package of measures around the strategic goals established for each industry.

Government support should cover the full development process, including research funding, factory upgrades to international standards, regulatory reform and faster domestic testing and certification.

Public procurement could also be used to establish an initial market for technologies developed in Thailand, allowing new products to be tested and adopted in real operating conditions.

The electric-vehicle industry illustrates the need for such coordination. Thailand has successfully developed a market and attracted substantial investment, but the economic benefits will remain limited unless the country also strengthens its domestic supply chain.

3. Work closely with business without being captured

TDRI proposed a national mechanism with genuine authority to coordinate work across ministries, supported by specialist working groups capable of addressing the specific constraints facing each industry.

Businesses, researchers and users should participate in policy design and product testing from an early stage so that government measures respond to actual operational problems and market demand.

However, the relationship should remain “close but not captured”. The government must retain its independence when determining strategic priorities so that public support does not become a tool serving particular interest groups.

Productivity should replace investment value as benchmark

Nopparuj argued that economic success should not be measured only by the amount of foreign investment entering Thailand or by the number of Thai companies becoming suppliers to multinational businesses.

The main benchmarks should be whether the country raises productivity and develops technologies and innovations that give it strategic industrial capabilities of its own.

Without a strategy to build specialist expertise and become competitive or attain leadership in selected fields, Thailand’s productivity will remain constrained and the country could stay trapped at middle-income status.

The government’s objective should therefore extend beyond making Thailand attractive to investors. Investment, technology and industrial growth must connect with domestic businesses, workers and communities so that Thailand can create more value within its own economy.