The New Economy in East Asia and the Pacific

By Peter Drysdale | Go to book overview

6.4

The Taiwanese experience: impact on production and trade

Sheng-Cheng Hu and Vei-Lin Chan


INTRODUCTION

Accelerated economic growth in the United States in the 1990s has often been claimed to be a 'new economy' phenomenon. The new economy emphasises the importance of information and communication technology (ICT), human capital and innovation for economic growth. However, empirical support for the new-economy phenomenon seems to be mixed. While earlier empirical studies had various explanations for Solow's productivity puzzle, 1 recent evidence supported the presence of a 'new economy' for the United States in the second half of the 1990s. 2

In contrast, Taiwan's economic growth has been slower in the 1990s than in the 1980s. Partly due to structural changes in the country's economy and the effects of the Asian financial crisis in mid-1997, the average growth rate of real gross national product (GNP) per capita fell from 6.84 per cent in the 1980s to 5.66 per cent over 1990-94 and 4.84 per cent over 1995-99. Since the 1990s, Taiwan has become a leading producer of computer hardware in the world. Taiwan plays an important role in the global production networks of the personal computer (PC) industry. The computer hardware industry contributes to Taiwan's economy not only through production but also through investment, exports and the capital market. This paper discusses Taiwan's recent economic development from three perspectives: ICT, human capital and innovation. In discussing ICT, we will focus on the three channels through which ICT boosts economic growth: the ICT sector itself, ICT investment, and spillover effects (where the use of ICT stimulates technological progress).

Taiwan is a small island with few natural resources. Traditional manufacturing industries played an important role in earlier economic development. In the past decade, the ICT industry has created another 'miracle' for the economy. Global networks of human resources and flexible, network-type industry structures are often regarded as key factors in explaining the rapid development of the computer hardware industry in Taiwan.

Since 1987, Taiwan's economy has experienced a dramatic structural change; the service sector and the ICT-manufacturing sector have grown rapidly. Real GDP of the service sector as a share of total real GDP rose from 47.34

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