This is the second of a two-part blog series accompanying AMRO’s 2025 Thailand Annual Consultation Report. Part 1 examined Thailand’s near-term growth challenges and macro-policy responses. Part 2 explores how Thailand can leverage foreign direct investment to achieve long-term structural transformation.
In Part 1, we examined why securing near-term growth momentum is the prerequisite for realizing the benefits of structural transformation in Thailand. But stability alone is not sufficient. Amongst others, Thailand must now ensure that its surge of foreign direct investment translates into lasting productivity gains and inclusive growth.
The numbers are striking. In the first three quarters of 2025, Thailand attracted a record-breaking THB 1.37 trillion (USD 42.2 billion) in investment applications – a 94-percent increase year-on-year. Foreign investors, predominantly from Singapore, China and Japan, accounted for 80 percent of this total. Digital infrastructure, advanced electronics and electric vehicles (EV) dominate the investment pipeline, signalling an important shift in Thailand’s industrial composition.
Yet foreign investment alone does not guarantee broader economic benefits; the key question is whether it generates spillovers — transfers of technology, skills and knowledge — that strengthen domestic firms and workers. Research consistently shows these spillovers are not automatic but depend on deliberate policy action and on Thailand’s absorptive capacity — the ability to learn from, adapt and build upon foreign technologies — which in turn reflects human capital quality, institutional strength, financial depth and trade openness.
Thailand faces several constraints in capturing spillovers. Investments in EV assembly and battery production are nascent sectors lacking established ecosystems. The shortage of high-skilled labor in digital and green technologies constrains knowledge transfers. Moreover, SMEs, which constitute 99.5 percent of Thai firms, remain under-represented in the incoming foreign investor supply chains.
The nature of new technologies also matters. EV, for instance, have simpler architectures and require fewer components than traditional internal combustion engines, potentially weakening domestic value-added linkages and pressuring legacy suppliers. Without proactive support, the transition risks creating a two-tier economy in which foreign firms operate at the technological frontier while domestic firms struggle to keep pace.
Thailand’s own history offers valuable lessons: In the 1980s and 1990s, the country successfully leveraged foreign investment in the automotive sector through phased local content requirements – escalating from 25 to 50 percent with clear timelines and specified components – supported by strong institutions such as the Thailand Automotive Institute and the Board of Investment Unit for Industrial Linkage Development (BUILD) program, which fostered linkages between large manufacturers and local suppliers. The results were transformative, with some Japanese automakers achieving over 90 percent local sourcing and a domestic supplier base of more than 2,300 auto-parts manufacturers, demonstrating that spillovers require deliberate, sustained policy action to enable knowledge transfer and capability building.
What does this mean for policy today? First, Thailand must strengthen its absorptive capacity by addressing specific skills shortages. Demand-driven vocational training programs – such as the Work-Integrated Learning model – should be scaled up across industries, with particular focus on digital and green technologies. Training programs must be closely aligned with the needs of incoming investors to ensure that the workforce can participate meaningfully in new production activities.
Second, SMEs need targeted support to upgrade their capabilities and meet the technical standards of emerging industries. This includes transition funds providing patient capital for retooling, and technical assistance programs facilitating technology transfer – for instance, helping SMEs transition from traditional auto parts to EV components.
Third, Thailand should create stronger linkages between foreign investors and domestic firms. Major FDI projects could include supplier development requirements benefiting local SMEs through training, technical support, or procurement. Thailand’s proven model of active intermediation, exemplified by the BUILD program, can be adapted to new sectors, creating matchmaking platforms and technology demonstration centers that bridge the gap between foreign expertise and domestic capabilities.
Finally, regional collaboration offers opportunities to amplify spillovers. Thailand could position itself as a specialized node within ASEAN’s evolving green industrial ecosystem, focusing on specific capabilities like battery manufacturing or EV assembly while partnering with regional peers for complementary activities. This cooperation can help Thai SMEs join regional supply chains, creating more sustainable competitive advantages.
Thailand’s record FDI inflows represent a critical window of opportunity. The convergence of global supply chain reconfiguration, the energy transition, and Thailand’s established manufacturing base creates favorable conditions for industrial upgrading – but only if foreign investment is viewed as a catalyst for building domestic capabilities that can serve multiple sectors.
As discussed in Part 1, near-term macroeconomic stability is the foundation for transformation. But transformation itself demands more. Maximizing FDI spillovers is one critical element. Policies that strengthen absorptive capacity, facilitate technology transfer, and integrate domestic firms into evolving value chains can help Thailand convert current momentum into sustained productivity growth, ensuring that today’s FDI surge becomes tomorrow’s inclusive prosperity.
Read the Thai translation of the blog here.