Economy of Taiwan - History

History

Taiwan has transformed itself from a recipient of U.S. aid in the 1950s and early 1960s to an aid donor and major foreign investor, with investments primarily centered in Asia. Private Taiwanese investment in mainland China is estimated to total in excess of US$150 billion, and official tallies cite Taiwan as having invested a comparable amount in Southeast Asia.

Taiwan has historically benefited from the flight of many well-educated, wealthy Chinese to settle on the island: during early Qing Dynasty, the preceding Ming dynasty supporters survived for a brief period of time in exile in Taiwan, and in 1949, as the Chinese Communist Party gained control of mainland China, two million Kuomintang (KMT) supporters fled to the island.

The first step towards industrialization was land reforms, a crucial step in modernizing the economy, as it created a class of landowners with capital they can invest in future economic endeavors. US aid was also important to stabilize post-war Taiwan, and it constituted more than 30 percent of domestic investment from 1951 to 1962. These factors, together with government planning and universal education, brought huge advancement in industry and agriculture, and living standards. The economy shifted from an agriculture-based economy (32% of GDP in 1952) to an industry-oriented economy (47.% of GDP in 1986). Between 1952 and 1961, the economy grew by an average of 9.21% each year.

Once again, the transformation of Taiwan's economy cannot be understood without reference to the larger geopolitical framework. Although aid was cut back in the 1970s, it was crucial in the formative years, spurring industrialization and security and economic links were maintained. Uncertainty about the US commitment accelerated the country’s shift from subsidized import-substitution in the 1950s to export-led growth. Development of foreign trade and exports helped absorb excess labor from the decreased importance of agriculture in the economy. Like Korea, Taiwan moved from cheap, labor-intensive manufactures, such as textiles and toys, into an expansion of heavy industry and infrastructure in the 1970s, and then to advanced electronics in the subsequent decade. By the 1980s, the economy was becoming increasingly open and the government moved towards privatization of government enterprises. Technological development led to the establishment of the Hsinchu Science Park in 1981. Investments in mainland China spurred cross-strait trade, decreasing Taiwan's dependence on the United States market. From 1981-1995, the economy grew at an annual rate of 7.52%, and the service sector became the largest sector at 51.67%, surpassing the industrial sector and becoming a major source of the economy's growth.