Case Study
TAIWANS SUCCESS STORY
Taiwan is one of the
four East Asian "tigers," or "mini-dragons,"whose dramatic
economic successes of recent decades, along with South Korea, Singapore, and
Hong Kong, have influenced the way economists think about development. With a
population of about 22 million, Taiwan is a mountainous, 14,000-square-mile
island off the coast of China. Taiwan's claim to its status as a
"development miracle" is as strong as that of any other economy in
the world. The island racked up a measured annual economic growth rate
averaging close to 8% over more than four decades. Taiwan grew nearly 10%
annually in the widely used benchmark 1965-80 periods, higher than any other
reported figure. Despite its now high income status, with a per capita income
of $13,925 in 2000 at market exchange rates ($22,646 in 2000, at PPP), Taiwan
continued to grow, at a rapid rate of 5.7% on average over the 1996-2000
period. Though growth in various countries has occasionally reached rates as
high as 14%, and in some regions as high as 25% or more, Taiwan's average
growth performance is the highest ever recorded over such a long stretch of
time. In the postwar period, Taiwan has grown from an impoverished annual per
capita income of just $100, to the prosperous society it is today. At least as
important, Taiwan has achieved universal elementary and middle school education
(nine years are mandatory), a healthy population with a life expectancy of 75
years, and an infant mortality rate of only five per thousand. Absolute poverty
has been essentially eliminated, there is very little unemployment, and
relative inequality is modest even by developed country standards.
Although not yet really a fully
developed economy and society, Taiwan has had to adjust to some of the changes
that face economies that have reached the threshold of high-income status.
There has been “hollowing out” of basic manufacturing, as plants have moved to
mainland China in search of lower-wage labor. Production that has remained has
been forced to rapidly shift to high-tech products and processes, in the face
of rising competition in basic industries from other developing countries.
There has been continued uncertainty about the island’s political future, given
poor relations with China, which continues to view Taiwan as a renegade
province, but so far the society has adapted. It has also transformed itself
into a credibly and competitively democratic polity, with far less corruption
and lack of government transparency than either its neighbours’ or than some of
its own history. Taiwan thus seems to have achieved almost everything we look
for in development. This achievement is in dramatic contrast to many other
economies.
Paradoxically, but as
is often the case in development studies, the problem is not that we have too
few explanations for success or failure, but too many. Taiwan's success in
particular has been ascribed to many factors. Here are 14 of the major ones: 1)
emphasis on education; 2) extensive infrastructure development; 3) early and
thorough land reform; 4) very high rates of savings and investment; 5) a
mixture of constructive foreign influences and diffusion of commercial ideas
from Japan and the United States; 6) effective government industrial planning;
7)the free market's release of human energies and creativity; 8) the 1960s
Vietnam War boom; 9)direct American aid—and Taiwan's use of that aid for
investment rather than consumption; 10) the work ethic and productive attitudes
of the labor force; 11) a long history as an entrepreneurial culture; 12) the
initiation of an export-led growth strategy in the midst of the rapidly
expanding world economy of the early 1960s; 13) the movement into
entrepreneurship of capable local islanders seeking opportunities for
advancement, as they were blocked from the political arena; and 14) the
survival instinct: the necessity of economic development as a defense against
attack from the mainland (the Peoples' Republic of China).
We will be able to
dismiss several of these explanations as major factors, but any of just a few
of the remaining factors might appear to offer sufficient explanation for
Taiwan's success. In this view, the key is to understand the magnified impact
of having many development factors operating successfully at the same time. It
results from a combination of an interpretation of the literature and a series
of on-site visits and interviews with public and private sector leaders in
Taiwan.
Land Reforms: Not
burdened by close political ties to landlords, the Taiwan government was
politically able to implement a thoroughgoing land-to-the-tiller reform program
in the 1950s. Landowners received stock in state-owned enterprises in return
for transferring land to peasants. This was a major factor in the extremely
rapid growth of agricultural productivity in this period—a crucial foundation
for later industrialization.
Very high rates of
savings and investment: Capital formation has long been deemed crucial to
successful development. Developed countries have much higher levels of capital
per head than less developed countries, one of the factors enabling developed
countries to enjoy higher productivity and incomes. Taiwan's savings rates were
among the highest ever recorded, reaching 30 to 40% in the 1950s and 60s. The
savings ethic is deeply rooted in Taiwanese culture. Parents teach children the
overriding need to save for a rainy day. This cultural pattern is supplemented
by public policies that keep real interest rates for savers relatively high and
tax free. Interestingly, like fellow tiger South Korea but unlike Singapore,
Taiwan has a relatively low foreign capital share in total investment, High
savings and investment is an important factor in development, but not a
sufficient one.
Task
Question 1.
‘In early 1960s, Taiwan had GDP per
capita and human development levels that placed it among the least developed
countries in the world. Subsequent decades saw economic growth and
industrialization that not only transformed Taiwan into one of Asia’s tiger
economies, but also provided an economic model that has been successfully replicated
by other regional economies’.
Discuss
the key triggers of Taiwan’s development
and transformation as highlighted in the case study.
Question 2.
Discuss the pursuit of the Free trade
and Liberalization policy, citing the advantages that it has facilitated in
contributing to Taiwans’ growth and development of its economy.
Question 3.
Discuss the theory
of Comparative advantage highlighting Taiwan’s key national competitive advantages
that have contributed to its economic growth.
The assignment consists
of 3 questions. The mark for the Individual report will be awarded to one
person only.
Mark Allocation
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Evaluation
Criteria
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Marks Allotted
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Proposal
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Brief Proposal and clear description about the
objectives
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-
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of the assignment and structure of the report
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Question 1.
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Introduction/ key triggers of Taiwan’s
development and
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transformation
as highlighted in the case study.
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35
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Question 2
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Free trade and Liberalization
policy, citing the in contributing
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25
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to Taiwan’s’ growth and development of its
economy.
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Question 3
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Discuss
the theory of Comparative advantage highlighting
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Taiwan’s key national competitive advantages that
have
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30
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contributed to its economic growth
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Conclusion
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Brief conclusion of the study
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10
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Format of the Report
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(Cover
page, table of
content, font size
and style,
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alignment
of the report and Harvard style used in
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referencing)
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Total Marks
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100
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