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.
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