KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT (KUSOM)

Balkumari, Lalitpur

DEVELOPMENT ECONOMICS

Case Review

A Development Success Story: Taiwan

Submitted to: Submitted by:

Mrs. Anupama S. Panta Anamika Shakya

Visiting Faculty- Economics Roll no. 18785

Reg No: 023670-18

Section- C

BBA Year II/ Semester III

Date: December 1st , 2019

Synopsis

The case talks about the success story of Taiwan due to mix of various socioeconomic factors,

suitable government policies that has led Taiwan to achieve socioeconomic development.

Identification of core issues

1)What are the major factors that helped Taiwan to achieve rapid socioeconomic progress?

2)What may be some of the drawbacks in Taiwan’s growth?

Core Issues
Issue I
The major factors behind Taiwan’s rapid socio economic progress are emphasis on education,

productive ideas from abroad, extensive infrastructure development, land reform, very high rates

of saving and investment, an effective industrial policy, and market place incentives to produce

wealth rather than to seek a share of existing wealth.

In 1968, the compulsory education was expanded for nine years. Similarly,. girl’s education was

given much priority as well as economic incentives for teachers were provided. Development of

infrastructure has been widely cited as a crucial factor in successful development. The Japanese

built roads, ports, and railroads to facilitate their own acquisition of rice and other farm products

from the island. Land reform also played a great role in development of Taiwan. the Taiwanese

government implemented 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 helped in agricultural sector development that led to industrialization later.

High rate of saving and investment played an important role for Taiwan’s development.

Taiwan’s saving rate ranged from 30% to 40% in 1950s that encouaraged further investment in

development sectors.

Incentives to produce wealth rather than merely to seek a share of existing wealth (rent-seeking

behavior) are established with solid property rights and not significantly undermined by other

policies. Taiwan has had active industrial policy systems in place to license exports, control

direct foreign investment both in and from Taiwan, establish export cartels, and provide fiscal

incentives for investment.

All these factors contributed for the socio economic development of Taiwan.

Issue II

Various socio economic factors contributed for the rapid economic progress of Taiwan but there

have been some drawbacks of it too. With rapid economic growth, Taiwan is suffering from air

pollution. There is lack of attention for the endangered species. Similarly, the development

activities were, mostly profit oriented rather than service oriented.

Analysis

Human Development index

The human development index is the social indicator that consists of measure of life expectancy,

literacy rate and per capita income indicators. A country with higher HDI indicates better

education, higher life expectancy and higher per capita income.

The annual economic growth rate averaging 7 percent for Taiwan from 1960 to 2000. Taiwan’s

economy grew nearly 10% annually in the 1965–1980 period, faster than any other nation’s. It

has a high per capita income of $13,925 in 2000 at market exchange rates.

Taiwan has achieved universal elementary and middle school education with nine years of

compulsory education. Much emphasis has been given for girls education as well.The girls

enrollment rate is 90% and boys enrollment rate is 96%. Talking about life expectancy in

Taiwan, a healthy population with a life expectancy of 75 years, and an infant mortality rate of

only 5 per 1,000 live births has been found. Similarly, the absolute poverty has been eliminated,

the unemployment is relatively very low. Taiwan ranks 21st among 188 countries in the world,

according to 2014 Huang Development Index. This indicates that Taiwan has better education,

health conditions, per capita income which means life standards of people in Taiwan in

increasing with better educational reforms, health facilities and better market incentives and

industrial policies supporting employment that has greatly helped to reduce poverty in the

country.
 2)Saving and investment

Government of Taiwan invested in development activities rather than spending in the

consumption. Similarly, there were high rates of savings in Taiwan. Taiwan’s saving rates were

among the highest ever recorded, reaching 30-40% in the 1950s and 1960s. Public policies keep

real interest rates for savers relatively high and tax-free. Since the interest rate is increased,

people tend to save as much as possible which increases the deposits in the bank. This means,

there is a large amount of money for the investment in the development activities. Higher

investment leads to increase in GDP and increase in national income.

Y

AD2=C+I2+G+NX
Aggregate

expenditure
AD1=C+Ii+G+NX

National
Y2
Y1 income

Interest

rate

IS2
IS1

National income
From the above figure we can see that due to increase in savings in Taiwan as the real interest

rose, the deposits increased which led to increase in investment from I1 to I2 as a result, the

aggregate demand also increased from AD1 to AD2 and we can see a shift in the IS curve due to

increase in investment. This results into increase in national income from Y1 to Y2.Thus high

rate of saving led to investment in development activities that is one of the reason for Taiwan to

attaining economic development.

3)Labor Market

Taiwanese government implemented land-to-the-tiller reform program on 1950. Landowners

received the stock in state owned enterprises in return for transferring land to the peasants. This

means that the agricultural products output is also increased which led to demand for industrial

products. The supply of goods from the industry increases as a result there will be rise in demand

for labors which increases the wage rate of the labors in Taiwan as shown in figure

Similarly, the government of Taiwan is focusing on collaborating more in research and

development and investment in high technological industries. This increases the demand for

skilled workers which increases the wage rate from W1 to W2.Taiwan emphasis on education

has helped to produce skilled worker. The increase in investment in Taiwan due to increase in
saving has created demand for the skilled worker as a result their wage rate is increased and they

can have a better living standard as well as their consumption and spending also gets increased

and it will result into increase in national income of Taiwan.

3) Production Possibility Curve

In the case we can see that government has put down a lot of efforts for educating the people by

expanding the compulsory education for nine years and supporting girl’s education. The

government investment in education produces sufficient amount of skilled workers that led to

increase in productivity which shifts the PPC curve rightward. Similarly, the investment in

infrastructural development and use of commercial ideas in Taiwan also led to increase in

productivity and shifted the PPC curve outward as shown in the figure which also supported

exports of goods by Taiwan.

Solutions

1. Government should invest more in education sector and reform the education sector as

well by making the English subject and computer subject compulsory so as to compete

with other countries in the global economy.

2. Government must take strict action to control air pollution which can be done by

encouraging afforestation, producing ecofriendly goods.

3. Improved and better skill and technical knowledge should be provided so as to adapt with

the technological advancement that can lead to further achievement of development by

Taiwan in long run.

4. Government of Taiwan should formulate strong policies for environment protection and

should implement it so that country can achieve not only economic development but also

sustainable development in long run.

5. There should be more efforts and incentives for producing more domestic goods so that

dependency on imports is reduced and increasing exports of goods of Taiwan should be

encouraged that would increase the national income of the country and lead to further

development in Taiwan.

Managerial Implications

From this case we can learn that proper policies and investment decisions plays a great role

for the success of any organization As a manger. One should acknowledge proper investment

decision that would benefit an organization like Taiwan’s strong investment decision in

education, better industrial policies helped it to achieve development. In similar ways, an

organization can perform well with implementation of better policies and investment

decisions.

Honor code

“On my honor as a student, I pledge that I have neither given nor received aid on this

assignment”- Anamika Shakya