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INVESTMENT IN TAIWAN.
Term Paper ID:24842
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Essay Subject:
Assesses international management of foreign direct investment. Trade, obstacles, politics, growth, theory. Tables.... More...
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6 Pages / 1350 Words
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Paper Abstract:
Assesses international management of foreign direct investment. Trade, obstacles, politics, growth, theory. Tables.
Paper Introduction:
TAIWAN: AN ASSESSMENT OF THE IMPLICATIONS FOR INTERNATIONAL MANAGEMENT OF FOREIGN DIRECT INVESTMENT—INWARD AND OUTWARD
This research assess the implications for international management of foreign direct investment—both inward and outward—involving the Republic of China (Taiwan). The focal period of this assessment is 1993-1997. The foreign direct investment into and out of Taiwan during this period is presented in Table 1, which may be found below on this page.
Table 1
Foreign Direct Investment: Taiwan—1993-1997
[US $ billions]
Year
Inward
Outward
1993
0.9
6.7
1994
1.4
6.2
1995
1.5
5.0
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Recent investments inassembly automation, however, have begun paying off in significantly higherproductivity increases. Taiwan's Directorate General of Budget,Accounting and Statistics announced that productivity gains in thecountry's manufacturing sector rose 8. ||1996 | 1.7 | 7.7 ||1997 | 1.8 | 7.4 | Source: Economist Intelligence Unit, 1997. In the case of both the United States and the Federal Republic ofGermany, most exports from Taiwan are products produced by Taiwanesemanufacturers for American and German production companies, which areseeking lower labor costs. OECD Economic Surveys: Taiwan, 1996.Pierson, M. growth, one finds little leftto explain. Products are permittedto remain duty-free in the free-trade zones, until they are re-exported toanother country. The Taiwanese government, however, actsto protect local producers from foreign competition, and generallyexercises a more interventionist role in the country's economy than thatwhich occurs in the United States (Chen 456). The emergence of the Southeast Asian financial crisis in late-1997 andearly-1998, however, has cast doubt on economic growth in Taiwan in thenear future. Asian Development Outlook. Taiwan adopted policesthat emphasized exports at the expense of current domestic consumption.These export strategies focused on the industries wherein the relativelylow labor costs in Taiwan created a competitive advantage. "An East Asian Paradigm?" Atlantic Economic Journal 24 (September 1996), 183-198.Treadgold, M. World Development Report. It has, however, been widely accused of violatinginternational patents and copyrights in its production for domesticconsumption. An important part of this difference,however, is explainable by the policies of the Taiwanese government thatdiscourage direct foreign investment in Taiwan (Pierson 117 ). In the case of the Taiwanese trade surplus withHong Kong, most of the Taiwanese exports to Hong Kong are destined formainland China, through a circuitous route which permits the governments ofboth the Peoples Republic, and Taiwan to maintain their public politicalpositions of opposition toward one another. (Ed.). Conversely, Taiwan typically enjoys significant tradesurpluses with the United States, the Federal Republic of Germany, and HongKong. Works CitedBarfield, C. Capital scarcity, thus, threatened the continued rapiddevelopment of the Taiwanese economy. Expanding U.S.-Asian Trade and Investment: New Challenges and Policy Options. E. While Taiwan has sought externalcapital for its economic development during this time period, the countrytypically dissuades direct foreign investment (Organization for EconomicCooperation and Development 183). Once one accountsfor the role of rapidly growing inputs in ... E. The Taiwanese government has implemented policies designed to spur thedevelopment of the export/re-export industry in the Pacific region, withTaiwan as a hub. Krugman (65) recognized the impressive economic growth achieved byTaiwan. Until toward the end of 1997, the productivity data from Taiwandirectly challenged the argument of Krugman that further economic growthcannot be attained by that country because the country's economy does notuse its inputs efficiently. New York: Oxford University Press, 1997.World Bank. "Macroeconomic Management." Asian-Pacific Economic Literature (199 ), 134-149.World Bank. Taiwan law permits the operation of an export/re-export activitywithin designated free-trade zones. To be sure, this position has many detractors among professionaleconomists. According to the agency, Taiwanese productivity gainsbetween 1992 and 1994 averaged 3.5 percent annually. According to this argument, macroeconomicstability has been essential to maintaining intra-sectoral and inter-sectoral balances in the economy of Taiwan. percent in the first-half of 1995(Barfield 26). Asian growth ... The dissuading of direct foreign investment, therelatively closed domestic markets, and the growth of the Taiwanese economycombined to create a capital problem for the country in the mid-198 s, asavailable loan capital was insufficient to meet the demands of the rapidlygrowing economy, while the country's protectionist policies discouragedforeign investment. In this context, therelationship between the Taiwanese government and the economy's privatesector follows much more closely the Japanese model than it does theAmerican model. Taiwan pursued economic growth in the 197 s and 198 s primarilythrough the development of its export trade, and the country has continuedthis approach in the 199 s (Terry 19 ). "Trade Investment: Emerging Policies." In Barfield, C. Macroeconomic stability, together with high rates of savings andinvestment, also contributed substantially to the economic growth attainedby Taiwan (Treadgold 134). He contended, however, that this growth has occurred "in largepart through an astonishing mobilization of resources. New York: Oxford University Press, 1997. "Taiwan Investments in China and Southeast Asia." Asian Survey 36 (May 1996), 447-469.Economist Intelligence Unit. Thus, in theearly years of this export-led growth, labor intensive industries were thevehicles of growth. The explanations offered by these economists of how economicgrowth has been achieved by Taiwan have emphasized the relationship betweeneconomic policies and economic growth (Hughes 92). L. Y. Washington: The AEI Press, 1997.Chen, X. Washington: International Monetary Fund, 1997.Krugman, P. In addition to dissuading direct foreign investment, Taiwan also, to agreat extent, closes its domestic markets to foreign manufacturers(Mitchell 371). The country is a leading producer of both riceand sugar. The targetregions for Taiwan's outward direct foreign investment and the sourceregions of Taiwan's inward direct foreign investment are identified inTables 2 and 3, respectively, which may be found below on this page.Table 2Target Regions for Outward Foreign Direct Investment|Region |Proportion of Total ||People's Republic of China | 36% ||Southeast Asia | 24% ||Japan | 12% ||Western Countries | 28% | Source: Organization for Economic Cooperation and Development 1997.Table 3Source Regions of Inward Foreign Direct Investment|Region |Proportion of Total ||Japan | 27% ||Southeast Asia | 26% ||People's Republic of China | 24% ||Western Countries | 23% | Source: Organization for Economic Cooperation and Development 1997. A part of this difference is explainable by what has beentermed Taiwan's "check book diplomacy" (Organization for EconomicCooperation and Development 117). While the country's outward foreign direct investmentpatterns had targeted what were the fastest growing economies in the world,those economies now are in peril. "East Asia-Regional Economic Integration and Implications for the United States." Law and Policy in International Business 25 (Spring 1994), 1161-1185.Terry, E. Theforeign direct investment into and out of Taiwan during this period ispresented in Table 1, which may be found below on this page.Table 1Foreign Direct Investment: Taiwan-1993-1997[US $ billions]|Year |Inward |Outward ||1993 | .9 | 6.7 ||1994 | 1.4 | 6.2 ||1995 | 1.5 | 5. Taiwan typically experiencessignificant and unfavorable trade balances with: (1) Japan, upon whom itdepends heavily for both consumer and industrial products; and (2) bothKuwait and Saudi Arabia, on whom it depends for most of its energyrequirements. Further, the country typicallyimports a minimal amount of food products, as it is, essentially, self-sufficient agriculturally. Importantly, Krugman (62-78) contends that countries such as Taiwan,for the most part, have exhausted the growth potential of the policies thatthey have followed for the past three decades because the commitments oflabor and capital that generated the growth attained cannot be repeated.According the Krugman (28-44), the upgrading of the quality of the laborforce through education is virtually complete, and the combination of highsavings rates and deferred consumption have reached reasonable limits incountries such as Taiwan. "Developments in Selected Non-OECD Countries." OECD Economic Outlook 57 (June 1995), 111-121.Organization for Economic Cooperation and Development. In manufacturing, the country makes an effort to produce thatwhich it consumes. As the data presented in Table 1 indicate, Taiwan's outward forwarddirect investment far exceeds the country's inward foreign directinvestment. London: Economist Intelligence Unit, 1997.Hughes, H. (1994, November-December). Taiwan is one of the world's most rapidly developing economies (WorldBank 241). Taiwan has a market economy. Taiwan has typically been successful in maintaining a balance betweenits imports and exports (World Bank 236). "Why Have East Asian Countries Led Economic Development?" Economic Record 71 (March 1995), 88-1 4.International Monetary Fund. Should an export/re-export operator desire to moveproducts in to the Taiwanese economy, however, the products are subject tothe high import duties, imposed by the government as a means of maintaininga balance in international trade, controlling the level of activity in thedomestic economy, and protecting domestic Taiwanese manufacturers (Hughes95). Electronics and information technology industriesare leading this trend. The focal period of this assessment is 1993-1997. World Economic Outlook 1997. Within these free-trade zones,Taiwanese import duties are not levied on products. While Taiwan typically maintains a near trade balance overall, thecountry, nevertheless, had often developed trade imbalances with specificcountries (International Monetary Fund 168). World Economic Outlook. seems to be driven by extraordinary growth ininputs like labor and capital rather than by gains in efficiency" (Krugman65). "The Myth of Asia's Miracle." Foreign Affairs 73 (November-December 1994), 62-78.Mitchell, K. "Flexible Circulation in the Pacific Rim: Capitalisms in Cultural Context." Economic Geography 71 (October 1995), 364-382.Organization for Economic Cooperation and Development. taiwan: an assessment of the implications for international management of foreign direct investment-inward and outward This research assess the implications for international management offoreign direct investment-both inward and outward-involving the Republic ofChina (Taiwan). While the Taiwanese relaxed itsinward-directed direct foreign investment policies to some extent, itremains a difficult process for foreign investors to gain a foothold in theTaiwanese economy.
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