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A thesis submitted in fulfilment of the requirements for the degree of DOCTOR OF PHILOSOSPHY MODELLING THE ECONOMIC IMPACT OF OVERSEAS STUDENTS' SOCIAL NETWORKS ON AUSTRALIA/THAILAND BILATERAL TRADE FLOWS Declan McCrohan School of Applied Economics Victoria University November 2004 CIT THESIS 382.09940593 MACC 30001008087019 McCrohan, Declan Modelling the economic impact of overseas students' social networks on ABSTRACT The exporting of education has become an integral part of the Austrahan economy and is now Australia's third largest export industry valued at over A$3.2 billion. The impact that these large flows of students into the Australian economy (for significant periods at a time) is having on Australia's bilateral trade relationships with these source countries, is now a pertinent issue. As the literature on immigration flows has identified, social network theory is an important tool in explaining how cross border flows of people can stimulate international trade activity. What impact are overseas students' social networks playing in stimulating trade activity between Australia and their home countries? This research on the economic impact of Thai overseas students on Australia/Thailand bilateral trade flows is a timely study undertaken to answer such questions. Based on a review of the available literature on the ways in which overseas student flows can stimulate trade flows, and a thorough review of social network theory and the link between social networks and international trade activity; a conceptual framework is developed for the process through which overseas student flows stimulate international trade flows in Chapter Five. This conceptual framework provides the theoretical support to the 'International Education model of bilateral trade' that is developed in Chapter Six to quantify the long term economic impact of Thai overseas students on Australia/Thailand bilateral trade flows, as well as the design in Chapter Seven of the International survey targeted at Thai overseas students who have studied in Australia. The findings of the research highlight the significant impact that overseas student flows from Thailand to Australia are having on Australia/Thailand bilateral trade flows, and Modelling the Economic Impact of Overseas Students Social Networks on Australia/Thailand Bilateral Trade Hows i also identifies the significant lag time that exists between the time when the overseas student completes their study in Australia and the time when the overseas student initiates some form of business activity with Australia. It also provides support to the important role that social networks play in reducing the natural barriers to trade. Finally, the research analyses some of the overseas student policy implications that arise from these research findings, and discusses possible directions and initiatives that the Australian government can consider implementing, to harness some of the possible trade benefits highlighted in this research. Key Words Social network theory, trade flows, overseas students, gravity model of trade, economic impact of overseas students, Australia/Thailand trade relationship. Modelling the Economic Impact of Overseas Students Social Networks on Australia/Thailand Bilateral Trade Flows ACKNOWLEDGEMENTS I would like to thank Professor Lindsay Turner, who despite not being my Principal Supervisor at any time throughout my study, has always been willing to read through my work and provide constructive criticism and ideas, pushing me to the next stage of my thesis. I am very grateful for his assistance. Other staff from within the School of Applied Economics at Victoria University also need to be acknowledged for their valuable feedback. I would like to thank Associate Professor Alan Morris who became my principal supervisor in the final year of my research, and Dr. Kulendran, Roberto Bergami and Jim Bates who provided valuable feedback to me on a range of topics. A big thankyou to Sidney Lung who worked with me on a joint paper sourced from my thesis. His econometric skills were of great assistance and I thank him for all the help he provided me with my regression analysis. I would like to thank the Faculty of Business and Law at Victoria University for providing me with a research scholarship which enabled me to focus on my studies without having to worry where my next meal was coming from. A special thanks to Tony Mitchener and the team at Australian Education International at the Australian Embassy in Bangkok for their assistance in providing access to databases critical to my survey. Also to Khun Piriyapom, the CEO at SIBA College in Bangkok, who kindly provided office space for my research whilst I was based in Bangkok. Modelling the Economic Impact of Overseas Students Social Networks on Australia/ThaUand Bilateral Trade Flows iii Finally, I would like to thank my parents for their support over the period of my research. It has been an experience filled with ups and downs however you have always been there to support me and provide encouragement. Thank you very much for all your kindness. Modelling the Economic Impact of Overseas Students Social Networks on Australia/Thailand BUateral Trade Hows iv DECLARATION This thesis contains no material which has been accepted for the award of any other degree or diploma in any university or other institution, and to the best of my knowledge, contains no material previously published or written by another person, except where due reference is made in the text of this thesis. Signature: Modelling the Economic Impact of Overseas Students Social Networks on Australia/Thailand Bilateral Trade Flows Contents, Figures and Tables TABLE OF CONTENTS ABSTRACT i ACKNOWLEDGEMENTS iii DECLARATION v LIST OF FIGURES x LIST OF TABLES xi CHAPTER ONE - INTRODUCTION 1 1.1 Introduction 1 1.2 Overseas Students in Australia 1 1.3 The International Education Model 3 1.4 The Inclusion of the Overseas Student Variable 7 1.5 Structure of the Thesis 11 1.6 Conclusion 15 CHAPTER TWO - SETTING THE SCENE - TRENDS IN INTERNATIONAL STUDENT FLOWS AND THE AUSTRALIAN GOVERNMENT'S INTERNATIONAL EDUCATION POLICY 17 2.1 Introduction 17 2.2 Trends in International Student Mobility 17 2.3 Overseas Students in Australia 22 2.4 Thai Students in Australia 35 2.5 The growth in Thailand's Education Imports 37 2.6 The Direct Economic Impact of Overseas Students in Australia 39 2.7 Conclusion 44 CHAPTER THREE - AUSTRALIA / THAILAND RELATIONS 45 3.1 Introduction 45 3.2 A Review of Australia/Thailand Bilateral Relations 45 3.3 Proposed Free Trade Agreement Between Australia and Thailand 50 3.4 A Closer Examination of Australia and Thailand Trade 54 3.4.1 The Development of Australia's Export Sector 54 3.4.2 Australia'sExports to Thailand 57 3.4.3 Australian Merchandise Exports to Thailand by Sector and Product 60 3.4.4 Australian Service Exports to Thailand 64 3.5 The Development of Thailand's Export Sector 68 3.5.1 Australian Imports from Thailand 71 3.5.2 Merchandise Exports by Sector and Product 71 3.5.3 Thailand Service Exports to Australia ^ 75 3.6 Foreign Investment in Thailand ^ 79 3.6.1 How Did Thailand Attract Foreign Investment ^ 81 3.6.2 Present Foreign Investment Regulation in Thailand 82 Modelling the Economic Impact of Overseas Students Social Networks on Australia/Thailand Bilateral Trade Flows vi Contents, Figures and Tables 3.6.3 Foreign Ownership Controls 84 3.6.4 Foreign Investment Flows Between Australia and Thailand 85 3.7 Conclusion 87 CHAPTER FOUR - THE INDIRECT ECONOMIC IMPACT OF OVERSEAS STUDENTS - THE LINK BETWEEN OVERSEAS STUDENTS AND TRADE FLOWS 88 4.1 Introduction^ 88 4.2 The Link Between Overseas Students and Trade Flows 88 4.3 The Economics of Networks 95 4.4 Social Network Theory 102 4.5 Social Network Theory and Information Flows 104 4.6 Social Network Theory and Overseas Students 109 4.7 The Role of Networks in International Trade Flows - The Immigration Connection 110 4.8 Link Between Immigration Flows and Overseas Student Flows 117 4.9 The Role of Networks and Trade Flows 121 4.10 The Importance of Trust 125 4.11 Conclusion 130 CHAPTER FIVE - THE IMPORT AND EXPORT PROCESS - WHAT ROLE CAN OVERSEAS STUDENTS PLAY? 132 5.1 Introduction 132 5.2 The Export Initiation Factors 133 5.3 Social factors in the export process 138 5.4 Impact of Culture on International Business Exchanges - The Natural Barrier to Trade _ 150 5.5 Developing a Theoretical Model of the impact that Overseas Students Play on Bilateral Trade Flows 158 5.6 Hypotheses Formulation 163 5.7 Conclusion 166 CHAPTER SIX - THE INTERNATIONAL EDUCATION MODEL 168 6.1 Introduction 168 6.2 Introduction to the Gravity Model 168 6.3 The "International Education' Model 179 6.3.1 The Export Model 180 6.3.2 The Import Model 183 6.3.3 The Bilateral Trade Flow Model 185 6.3.4 Data and Cointegration Analysis 186 6.4 The Export Model 189 6.5 The Import Model 192 6.6 Bilateral Trade Model 194 6.7 Conclusion 195 Modelling the Economic Impact of Overseas Students Social Networks on Australia/Thailand Bilateral Trade Flows vii Contents, Figures and Tables CHAPTER SEVEN - SURVEY METHODOLOGY 197 7.1 Introduction 197 7.2 Survey design for social networks and associated business activity 197 7.3 Sampling Methods 199 7.4 Sampling Frame 199 7.5 Mail -out questionnaires in the Thai market 201 7.6 Measurement and scale 201 7.7 Research Design 202 7.8 Questionnaire Structure 203 Section 1: Background and current situation 205 Section 2: Business Activity with Australia 206 Section 3 Travel Information 207 Section 4: Respondent Information . 208 7.9 Data Coding and Editing 208 7.10 Conclusion ^ 208 CHAPTER EIGHT - PROFILES OF THAI OVERSEAS STUDENTS WHO HAVE STUDIED IN AUSTRALIA 210 8.1 Introduction 210 8.