After the World War II, Taiwan, having one of the world's highest rates of economic growth and exports, has become an economically strong administrative center. Nowadays, Taiwan is a part of a group of newly industrialized economies and plays an increasingly significant role in the economies of the Asia-Pacific region. In the recent years, it has shown an example of the efficient use of foreign economic relations in the interests of economic and social development. Many economists believe that the origins of Taiwanese economic miracle are closely connected to the country's focus on the development and production of high technologies. However, for the small country, which is rather poor in terms of natural resources, and, moreover, is not recognized as an independent state, such hypothesis may seem unrealistic.
The status of Taiwanese economy is, to some extent, controversial. Formally, it cannot be considered a small one as it is the fifth largest economy in Asia and is among 25 of the world's largest economies. In addition, Taiwan is one of the so-called Asia's Dragons - the informal name of the economies that have demonstrated the very high rates of economic growth since the early 1960s and until the financial crisis of the 1990s. Finally, despite the small size of the country (its total is approximately 36,000 square kilometers), it has a population of 23 million people. On the other side, Taiwan has certain features that allow defining it as a small economy. The first of them is the country's proximity to China (formally, Taiwan is one of the Chinese provinces, and is recognized as an independent state only by 22 countries of the world). Moreover, Taiwan is highly dependent on the external factors, particularly exports, which accounts for over 65% of the country's economy (Roberts et al., 2015).
However, Taiwan has not obtained its current status as one of the world's major economies very fast. The country has spent decades on development of its industrial infrastructure and management expertise required to achieve its goal. By developing the traditional industries of light and textile industry in the 1950s years, Taiwan has managed to develop its export capacity of such type of product during the 1960s (Berger & Lester, 2015). In the 1970s, the country has moved to the second stage of import substitution by developing heavy and chemical industries. Thus, Taiwan has implemented a labor intensive and resource-driven model of economic growth, which was focused on industrialization and the export of the industrial products. As a result, the country has experienced a rapid export growth, high GDP growth rate, as well as the increase in savings and investment. However, by the beginning of 1990s, existing model of economic development has become exhausted. Such exhaustion was manifested in the reduction of economic growth and the level of investment, deindustrialization of the country, transfer of market niches in the industrial sector to China, and the decline in the overall competitiveness of a state (Berger & Lester, 2015).
As a result, there was a need to change the country's economic paradigm. The high technologies were selected as a new vector of development. It was justified primarily by the growing pace of the technological problems. At the same time, the mentioned development of Taiwanese heavy and chemical industries during the 1970s and 1980 has allowed applying scientific and technological advances in production, and use technological know-how, which has ensured the country's successful transition to the manufacturing of high-tech products (Yu, 2012).
Thus, leadership of Taiwan has promoted and funded the establishment of public institutions for the dissemination of scientific research and modern industrial technologies. Spending on the research and development have increased by 11% per year while the investments in research and development of the private sector grew even faster - by 19% per year. As a result, currently, the share of private companies accounts for over a half of the country's total expenditure on research and development. In 1998, Taiwan spent 1.98% of its GNP on research and development (Yu, 2012). The rapid growth in spending for such purposes has resulted in a doubling of the number of people employed in the industry (scientists and technicians) and a sharp increase in the share of high-tech products in total exports of the island from 22.6% to 39.8% over ten years. In 1999, Taiwan was ranked 4th in the world in the number of the purchased U.S. patents (Yu, 2012).
In order to ensure the active involvement of foreign advanced technology, a scientific Hsinchu Industrial Park was established during the 1980s. Currently, there are approximately 300 companies involved in the production of high-tech products that employ more than 100,000 people. Moreover, the park annually sells the high-tech production in the amount equal to 30 billion dollars. Companies operating in the park, spend more than 6% of their expenditure on research and development, which is three times more than the average spending on such needs. Approximately 13.6% of people working there have a higher education, with their number growing with each passing year (Yu, 2012).
An important role in the development of the Taiwanese industries associated with high technology is played by finances for their development. Without them, business cannot operate and provide the new investments in research and innovation. The Taiwanese financial liberalization has made financial markets more competitive. In the recent years, the number of banks with operations in Taiwan has increased from 24% to 52%. The share of foreign banks has increased from 5.8% to 6.7% (Yu, 2012). In addition, an important role in the development of high-tech industries in Taiwan is also played by the human capital that is essential for the economic growth in general. In order to meet the needs of economic development, technical specialties were given a priority in the country's educational system. As a result of steadily growing, the number of students studying science and engineering specialty has greatly increased, as well as the share of such group in the total number of graduates, which guaranteed admission of highly skilled workforce for Taiwanese high-tech industries. Thus, it is possible to say that after focusing on the development and manufacturing of high technologies, Taiwanese economy has become more capital and knowledge intensive, being driven by investments and innovations instead of resources.
How It Works
As a result of the shift to the high technologies and the innovation-driven model of development, Taiwan's economy has demonstrated rapid growth, exceeding an average of 4.5% per year, starting from the 1990s. In twenty years, GDP per capita has increased from 9,116 dollars in 1992 to 19,762 dollars in 2012, making Taiwan the 28th richest economy in the world and the 6th in Asia (Yu, 2012). It should be noted that Taiwan has made the economic transition without losing the level of economic growth. In fact, the example of Taiwan shows that such transition greatly increases the general welfare of the population.
Over the past 20 years, the international trade has become the main driving force of Taiwanese economic growth. In 1992, total trade amounted to 180 billion dollars or 82% of GDP, while by 2012, such amount increased to 650 billion dollars or140% of GDP, making Taiwan the 19th largest trading economy in the world. Such success of the 'economic miracle' of Taiwan became clear specialization in the production of high-tech products. Up to 99% of exports from Taiwan are the products of the industrial sector, while the agricultural one only accounts for the remaining 1%. Approximately 70% of export from Taiwan accounts for the components of high-tech products, which are ultimately produced under the label Made in the USA, Japan and the EU(Yu, 2012).
Nowadays, Taiwan is the world's largest supplier of computer chips and a leading manufacturer of liquid crystal displays (in 2014, the market has grown by 32%), computer DRAM memory, network equipment, as well as the prolific designer and manufacturer of consumer electronics. Moreover, it produces 94% of all computer motherboards in the world. In addition, the country competes with the giants of the industry, promoting home-grown brands, such as Acer and Asus. At the same time, the volume of the other industries, such as textile, is reduced due to the shortage of labor, increasing overhead costs, land prices and costs for environmental protection. The country's imports are dominated by raw materials and capital goods, which account for more than 90% of their total quantity (Kuo, 2015). In addition, Taiwan imports most of its energy needs. The United States is the third largest trade partner of Taiwan at 11.4% of Taiwanese export, and import deliveries of 10%. Recently, the largest partner in the import and export of Taiwan was China. In 2014, China accounted for 28% of Taiwan's exports and 13.2% of imports (excluding Hong Kong) (Kuo, 2015). Such figure is growing rapidly, and the two economies are becoming increasingly interdependent. The imports from China mainly consist of agricultural and industrial raw materials. The exports to the United States are primarily electronics and consumer goods. With the increasing levels of per capita income, the country has experienced an increased demand for imported high-quality consumer goods.
Moreover, the absence of formal diplomatic relations between Taiwan and its trading partners, due to its limited recognition, does not interfere with the rapidly expanding trade. The country is a full member of 32 international organizations and their controlling bodies. In addition to the World Trade Organization, Taiwan is a member of the Asian Development Bank as the Chinese Taipei (the name was taken under the influence of China) and the Asia-Pacific Economic Cooperation as Chinese Taipei (for the same reason as above). Such facts reflect Taiwan's economic importance and its desire for the further integration into the global economy (Kuo, 2015). Thus, Taiwan was able to fulfill the dream of any economy - becoming an absolutely indispensable player in the global production chain.
Moreover, the process of economic growth of Taiwan still continues. According to the forecasts of the International Monetary Fund (IMF), the growth of GDP of Taiwan in 2015 and 2016 will amount to 3.8% and 4.1% respectively, exceeding the world's average growth (3.5% and 3.8% respectively). It is predicted that consumer prices will rise in the country by 0.7% and 1.3% respectively, and the unemployment rate will persist at the level of 4% for the two years. Moreover, the forecasts regarding economic growth in Taiwan are higher than the corresponding forecasts relating to Hong Kong (2.8% and 3.1% respectively), Singapore (3% and 3% respectively), and South Korea (3.3% and 3.5% respectively) (Taiwan Today, 2015). Such optimistic forecasts for Taiwan are closely connected with the current large-scale investment by the suppliers of mobile communication devices to the local semiconductor industry. The excessive consumption that was influenced by the low oil prices, as well as the increase in the number of tourists from abroad have also contributed to such encouraging forecasts. IMF forecasts are confirmed by the country's government. According to it, Taiwan's GDP per capita will increase by 3.78% and reach 22,823 dollars, while the private consumption and investment will increase over the same period by 3.12% and 5.98% respectively (Taiwan Today, 2015). According to the experts of IMF, the large investments in the Taiwanese semiconductor industry, which is essential for the production of computer chips, are among the key factors of the current economic growth of the country (Taiwan Today, 2015).
It is clear that technological progress and the shift to the development and manufacturing of high technologies have played a major part in the economic growth of Taiwan. The significant investments in the industry, the adjustment of the country's human capital to its needs, as well as the careful preparation for the transformation of the economy have made Taiwan, a partially recognized state, an indispensable part of the global production chain. As a result, the country, which independence is recognized only by the 22 states, has managed to become a full-fledged member of a variety of international organizations. In addition, the export-oriented economy of Taiwan has strengthened its ties with the other members of the global community, including such significant players as the U.S. and China. It helped increasing the interdependence between the countries, as well as Taiwan's significance on the global economic arena. By taking into account the country's leading position in the development and manufacturing of a wide array of high technologies, one may assume that its status is unlikely to change in the nearest future. Thus, it is possible to conclude that the current Taiwanese economic miracle has occurred due to the technological progress, as well as the country's innovation-centered economic policy.
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