Outward Looking Policies and Economic Development: A Case of Taiwan since 1952

Abstract

In this paper, we analyze the transformation of Taiwan from an agriculture based natural-resource-abundant economy into a high-technology, advanced economy, with the help of comparative advantage in international trade theory, and the Heckscher-Ohlin model. Taiwan's trade policies shifted from import substitution and industrialization after World War II, to a labour-intensive export-led growth stage between 1965 and 1972, a secondary imports substitution stage between 1973 and 1980, and a technology and modernization stage since 1981. Our research shows that with a relative low endowment of natural resources, a small economy like Taiwan benefited greatly from international trade because it could acquire not only the capital goods and raw materials of industrialization but also the necessary output for its consumption. In this transition, government policies that restructured the economy were crucial for Taiwan to use its resource endowments to the greatest advantage.

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