Semiconductor Industry Development in Taiwan and the Philippines: Comparative Insights for the Global South

Main argument: We argue that the contrasting fortunes of the Taiwan and Philippine semiconductor industries are best explained by the differences in how their respective states deployed industrial policies and institutions in shaping development outcomes, particularly across four key areas: public R&D institutions, industrial governance and strategy, industrial clustering and state-business-academia relations, and scientific and technical human capital policies. Policy landscape: Today, semiconductors are the leading exports for these two political economies. Both their industries started at a more or less similar footing, tracing their origins as assembly, testing, and packaging (ATP) hubs back to the late 1960s. Their paths have since diverged: Taiwan was able to build a fully integrated ecosystem that spans design, fabrication, and advanced packaging and testing, while the Philippines remains largely confined to low-value ATP with no domestic fabrication capacity to date. Methods: The study compares Taiwan and the Philippines as cases that shared a relatively similar starting point in labor-intensive ATP in the late 1960s but diverged in outcomes. We examine the policies and institutional arrangements each deployed, particularly during the critical period from the 1970s to the 1990s, when the foundations of their respective industries were laid. Findings: Taiwan's ascent to global leadership in semiconductor manufacturing was neither haphazard nor simply the outcome of unfettered market forces, but the result of industrial vision combined with strategic orchestration of public R&D (most notably ITRI), industrial clustering in the Hsinchu Science Park, and an educational system tailored to the industry's needs - a purposeful symbiosis of the state, academia, and industry that produced a self-reinforcing ecosystem conducive to industrial upgrading. The Philippines' experience, by contrast, underscores the consequences of fragmented governance, risk-averse public R&D, and an educational system insufficiently oriented towards industrial priorities. Policy recommendations: We propose that developing countries (1) rethink the mandate of public R&D institutions to allow calculated risk-taking and a tolerance for failure; (2) have the state co-invest with the private sector in capital-intensive, strategically important segments of the value chain, socializing not only the risks but also the rewards of public investment; (3) strengthen governance arrangements and expert advisory platforms to overcome information asymmetry and coordination failures; (4) place equal emphasis on building firms' absorptive capacities along with frontier R&D; (5) anchor human capital development explicitly in industrial strategy, including TVET reform and the mobilization of diaspora professionals through "brain circulation"; (6) pursue industrial clustering as a deliberate and coordinated strategy rather than a passive by-product of investment promotion; and (7) strategically leverage the evolving geopolitical landscape to extract developmental concessions, such as technology transfer. Conclusion: For the Philippines and similarly situated economies in the Global South, moving up the technological ladder will require a more proactive approach to industrial policy, institutional reconfiguration, and a fundamental rethinking of how development is understood and pursued.