Dynamic Changes in Location Choice and Fragmented Flying-Geese Theory: An Empirical Analysis Using Microdata from Thailand and Japan

Abstract This paper analyzes the evolving determinants of Japanese multinational enterprises’ (MNEs) location choices in Thailand from 2006 to 2020, drawing on a uniquely constructed panel dataset that integrates industry–province level aggregated from the Thai Industrial Census microdata with detailed firm-level information on Japanese affiliates in Thailand. Using this dual lens through the conditional logit models, we conduct a dynamic examination of how agglomeration forces, supply-chain linkages, and the roles of local versus foreign firms shift over time in determining the location choice of MNEs within Thailand—addressing key limitation of the existing literature, which has largely relied on static, single-period analyses. Our results indicate that intra-provincial supply and sales networks—particularly those formed by Japanese and other foreign firms—remain the strongest drivers of Japanese investment, while cross-provincial linkages carry considerably weaker influence. As Thailand’s industrial capabilities deepen, both upstream and downstream spillover effects emerge, with local firms increasingly participating in production networks previously dominated by foreign enterprises. Over time, the influence of pre-existing foreign firms declines, whereas the prominence of domestic firms rises, reflecting the strengthening of local technological and organizational capabilities. Japanese entrants initially interact more closely with foreign than local firms, suggesting that downstream integration of Thai firms proceeds more gradually. Overall, our paper highlights a structural transition from cost-driven to network-driven investment dynamics and demonstrate how Thailand’s increasing production complexity underpins the growing importance of localized, capability-based agglomeration.