Production Networks, Profits, and Innovative Activity: Evidence from Malaysia and Thailand

Abstract

Cross-border production networks have been playing an increasingly important role in the Association of Southeast Asian Nations (ASEAN) countries' trade in recent years, but micro-level studies of their impacts are rare. This chapter uses firm-level data from the two ASEAN countries that are most active in production networks (Thailand and Malaysia) and examines the effect of participating in production networks on profits and technological capabilities of firms. The empirical results suggest that participating in production networks raises profits. The evidence further suggests that participation in production networks is positively correlated with technological upgrading, measured by a technological capabilities index.