Investment Relationships for Taiwan and the Philippines
|Source: Author's calculations using data from the Japan Export Trade Organization, White Book|
of Overseas FDI ( 1996), ROC Ministry of Economic Affairs Investment Commission;
Statistics on Foreign Investment ( 1996); and ROC Council for Economic Planning and Development, Taiwan Statistical Data book ( 1996).
diplomatic relations between the two countries and the economic uncertainties and obstacles which confronted potential investors as a result. Japan's negative residual for inward FDI was typical of its inward residuals from other Asian countries, hinting at unexplained difficulties faced by neighboring countries in doing business there. The negative residuals associated with Japan's outbound FDI toward both Taiwan and the Philippines are probably best explained by cyclical factors; 1994 was not a banner year for the Japanese macroeconomy and yet extremely high per capita incomes led to high estimate values which were difficult for performance to match.
Government have the proven ability to hinder some forms of economic activity which they consider socially undesirable, as long as they have the political will to intervene directly in the economy. But in managing the economic relationship with greater China, the Taiwan government's ability to curtail trade and investment collides with its general support of free-market decision making, making it difficult to prohibit profitable trade and investment flows. Furthermore, Taiwan has always had difficulty filtering the trade flows that pass through Hong Kong and identifying and controlling the portion originating in the People's