Economy of Taiwan

Throughout its history Taiwan has experienced periods of economic boom and bust. Several centuries ago the island was a major trading centre in East Asia, and it prospered. Taiwan grew economically under Dutch rule in the mid-1600s and in the late 1800s under Chinese rule. It did well economically as a colony of Japan from 1895 to 1945 but experienced decline in the years immediately after World War II.

In the late 1940s and early 1950s, many economists regarded Taiwan’s economic situation with considerable pessimism. That assessment was based on Taiwan’s unfavourable land-to-population ratio, its lack of natural resources, a shortage of capital, and a discredited government. However, that perception did not turn out to be true. Taiwan’s economic growth beginning in the mid-1960s was so spectacular that it acquired the appellation “economic miracle.” In the 1990s Taiwan’s economy slowed, but its growth remained good, even during the East Asian financial crisis of 1997. In 2001 Taiwan experienced a recession, mainly caused by political paralysis. Its economy again underwent a downturn, beginning in 2008 with the global recession, from which it recovered only slowly.

Taiwan’s economic boom of the 1960s and for several decades after was preceded by land reform, which generated a marked growth in the agriculture sector. Rural prosperity stimulated industrial development, while more-efficient farming released labour for Taiwan’s industrialization that drove the economy in the 1960s and ’70s. In the 1980s Taiwan moved to capital-intensive and knowledge-based industries. A high rate of savings, rising labour productivity, privatization, astute government planning, considerable foreign investment, and trade all propelled Taiwan’s rapid economic expansion.

Taiwan’s initial industrialization was spurred by the growth of textile factories and companies that produced light manufactures, such as small appliances, footwear, and athletic equipment. Companies subsequently moved to manufacturing semiconductors and electronic equipment, including radios, television sets, and computers. By the mid-1980s Taiwan had become one of the world’s largest producers of computers and computer peripherals. It also succeeded in establishing steel and shipbuilding industries, but those were of less significance than the enterprises manufacturing information- and communication-technology (ICT) products. One reason given for that circumstance is that Taiwan’s economy is based primarily on small- and medium-sized companies rather than on large conglomerates—as has been the case in Japan and South Korea.

Early on, Taiwan adopted a policy of import substitution, imposing high tariffs to protect its budding industries. However, it soon abandoned that strategy in favour of strongly promoting exports—to the degree that it soon was trading more than Japan and had become a model for development that refuted the dependency theory model that had been applied to developing countries in other parts of the world (e.g., Latin America). Of note in Taiwan were the creation of export-processing zones, in which foreign companies were allowed to establish factories that were given significant tax breaks and other advantages but that also trained local labour and generated spin-off enterprises that were also part of the “Taiwan model.” Other components of that model included low taxes, a good infrastructure, a stable society, and a good educational system.

Agriculture, forestry, and fishing

Taiwan has long been known for its productive agriculture, based on its rich volcanic soil, plentiful rainfall, and good climate. In fact, those conditions are what attracted early Chinese migrants. During the Japanese colonial period Taiwan exported large quantities of rice and sugar to Japan. In the early post-World War II years agriculture flourished. Double cropping of rice and some other crops, fertilization, and irrigation enhanced yields considerably, as did the introduction of hybrid and other improved seed stocks.

Since the beginning of the 21st century, however, Taiwan’s farmers have been hit hard by foreign competition, in part because individual farms on the island are small but also because after Taiwan joined the World Trade Organization (WTO) in 2002, it became easier to import cheaper foreign agricultural products. Raising livestock has fared little better. Pigs, chickens, and ducks have been preferred over cattle, but all options have met with difficulties in the face of foreign imports. Farmers who raise fruits and vegetables have fared somewhat better, and those growing tea and some specialty crops have done fairly.

Forestry and fishing, which were once important sectors of the economy, have also diminished in importance. Forests have been depleted, and the forestry sector now accounts for only a tiny fraction of Taiwan’s economy. Fishermen have to fish in more-distant waters, and many now engage in aquaculture to remain employed. One area of significant growth has been floriculture, with Taiwan becoming a major exporter of orchids. Organic farming has also become popular in Taiwan.

Overall, the agricultural sector constitutes only a small fraction of Taiwan’s economy, with crops making up the bulk of the value. Rice has remained Taiwan’s most-valuable crop, notwithstanding the difficulties that Taiwan’s membership in the WTO has caused for rice farmers. The main fruits and vegetables grown, by production value, are bamboo shoots, cabbages, watermelons, shiitake mushrooms, leafy vegetables, and green onions (scallions). Tea has a good local market and is also an important export product. Sugarcane has declined markedly in production because of labour costs and competition from other countries.