Foreign factors in Taiwan's economic transformation

This paper aims to explore the foreign influences on Taiwan's economic transformation over the past 40 years. While exports have always been important in sustaining Taiwan's economic growth, the driving force behind exports has changed from inward investment to outward investment. The analysis carried out is from an international political economy perspective and takes a historical overview. It argues that the US, Japan and China pursued economic policies based on their own economic interests. These foreign governments' economic policies together with their entrepreneurs' business interests are the more important variables for shaping Taiwan's economic structure. During the 1960s, without the US's financial guarantees for American MNCs and security guarantees for the island, the KMT's foreign investment promotion policy would not have been as successful as it was when Taiwan faced a military threat from China. The US and Japanese economic policies changed, and since the 1970s competition between their businesses in the world market has integrated Taiwan into a regional production network. Subsequent to the Sino-US rapprochement, the US gradually opened up its market towards China. With America's rising trade barriers against Taiwanese-made products, Taiwanese entrepreneurs found profits by investing in China. Even though the Taiwanese Government tried hard to pull back the mounting outward investment in China, it was unable to achieve it. In contrast to the traditional point of view, this paper offers insights into the economic interaction between first the US and Japan and later between the US and China that resulted in Taiwan's economic transformation.