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A Pioneer in Development Success through Trade:

A case study of Taiwan

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Taiwan is one of the original four “East Asian Tiger” economies whose dramatic economic

successes of recent decades influenced the way economists think about development. The

experience of Taiwan was a major impetus behind the changes in economic policy instituted in

the People’s Republic of China (PRC) beginning in 1978. With a population of about 23 million,

Taiwan, which calls itself the Republic of China (ROC), is a mountainous, 36,000 square

kilometer (14,000 square mile) island off the coast of the Chinese mainland, about the combined

size of Maryland and Delaware, or a little less than that of the Netherlands. Taiwan’s claim to its

status as a “development miracle” is strong. The island racked up a measured annual economic

growth rate averaging about 7% over the four decades from 1960 to 2000. Taiwan’s economy

grew nearly 10% annually in the 1965–1980 period, faster than any other nation’s. 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. Sustaining such high rates over such a long stretch of time was unprecedented

until the subsequent growth of China itself.

Competing Explanation for Success

Competing Explanations for Success Taiwan’s success has been ascribed to many factors,

including an emphasis on education, extensive infrastructure development, early and thorough

land reform, very high rates of saving and investment, a mixture of constructive foreign

influences and diffusion of commercial ideas from Japan and the United States, an effective

government industrialization strategy, the free market’s release of human energies and creativity,

a 1960s boom resulting from the Vietnam War, the initiation of an export-led growth strategy in

the midst of the rapidly expanding world economy of the early 1960s, direct American aid—and

Taiwan’s use of that aid for investment rather than consumption.

What are the key issues or problems in the case?

Taiwan was already a successful country according to the case. Taiwan focuses on the following:

Emphasis on Education

Education has been viewed as one of the most important factor in Taiwan development success.
Consistent with China culture for education, 6 years of education became compulsory for Taiwan
in 1950.Girl enrollment surpassed 90% (while boy 96%) age 6-11 in 1956.1968: compulsory
education expanded to 9 years (plan to 12 years)Students study 7 hours/day and 5 and half
days/week. In 2002: student-teacher ratio is less than 20. Teacher salaries are relative high
compare to lower-middle-manager. Taiwan’s model for general education: USA for vocational
training: Japan. Students generally remain in school after enrollment. Teacher taught seriously.

Early & Thorough land reform

Taiwanese gov’t conducted land reform in 1950s.Landowner received stock from state-own
enterprises in return from transforming land to peasants. It’s a foundation for later on

Very High Rate of Saving and Investment

1950s-1960s: Taiwan saving rate was 30%-40% (among the highest recorded ever in the world).
Saving ethic was deeply rooted. Parents teach their kid to save for a rainy day. Public policies
keep real interest rate relatively high & tax free.

Diffusion of Commercial Ideas

Absorbing commercial ideas from Japan and United States. Active search for items that could be
sold in the United States

Effective Government Policy


Market Incentives

Incentives to Produce Wealth rather than rent-seeking behaviors are established. Solid property
rights not undermined by other policies. Early 90s = Corruption Scandals due to old martial laws.
1996 Lee Teng-huias president was the culmination of a smooth five-year transition to
Democratic Governance. Elections have been highly competitive since then and are generally
viewed as free and fair; power has changed hands peacefully.

Extensive Infrastructure Development

It’s a crucial factor for Taiwan Development success. High way is argued to be a represent for
“growth pole”. During Japanese colonial (1905-1945): Taiwan has improved its infrastructure
system for superiors compared to that of most poor countries at that time.
Prioritize the issue

Despite of being a successful country Taiwan neglect some areas of their development. So the
issue to be prioritized is the Extensive Infrastructure Development. Due to its development
Taiwan had an issue about the environment as mentioned in the case.

Is it necessary to identify the cause of the problem?

Solving a problem depends on how you are going to identify the problem and the underlying
causes. Only through analyzing the causes of the problem will you be able to see which solutions
will be appropriate of tackling it. The underlying issue may not be obvious and you need several
approaches to understand the problem.

Finding solutions is impossible, if you don’t know what caused the problem to begin with. It is
futile to develop a response when you don’t know what you are responding.

Select an optimum solution

Conduct an evaluation before conducting such infrastructure development. Analyze first the
impact on the environment prior to decision making or the so called Environmental Impact
Assessment. It is a systematic process to apply current scientific knowledge to check the
environmental consequences of projects, policies and programs.

Describe how solution should be implemented

Implementing solution is a culmination of all work in solving a problem. First and foremost the
government of Taiwan must intervene. It must be shaped through government interventions.
Solutions will be implemented if and only if the government gives a corresponding policies. And
those who will not comply to the rule must be punish.