Taiwan's import market
Taiwan is an example of successful economic development through pursing import substitution. Taiwan successfully avoided many of the pitfalls which countries trying to develop their export products typically fall into. The typical process for developing an industry for import substitution is to identify an industry where there may be a comparative advantage, erecting protective barriers, stimulating the development of that industry, and then removing the protective barriers once the industry can be competitive. Taiwan's success can be attributed to following the proscribed procedure and avoiding the temptations which cause many developing industries to fail. Taiwan went from being an exporter of mushrooms to an exporter of electronics. This is because Taiwan was successful in selecting which industries to pursue development. Taiwan is an island nation with a relatively high population; therefore it did not m
The government had a preference for industries and companies that were able to export their products. Lastly in 1958 Taiwan removed tariffs and quotas on the consumer goods industry. The interest rate ceilings allowed for firms to utilize domestic capital to finance their operations. In the long-term protective trade barriers can cause monopolies and oligopolies to develop, and additional negative factors such as smuggling and black markets in the targeted industries. Taiwan avoided placing protective barriers over other industries where it does not have a comparative advantage. The government of Taiwan stimulated development of consumer goods industries through interest rate ceilings and government allocation of credit. This lessened the dependency on foreign capital, and the profit flight that occurs with foreign ownership. The successful exporting of consumer goods allowed Taiwan to build a capital stock of its own to finance the more capital intensive technology industry for which it is known today. By lifting the trade barriers in a reasonable amount of time, Taiwan avoided having its industries become inefficient and dependent on the trade barriers for survival. Taiwan did this in 1953 by placing extensive tariffs and quotas on consumer goods. While it may be a source of national pride, it is difficult to develop an industry to produce such a technologically complicated and capital-intensive product, while being competitive in the global market place. Many countries often make the mistake of using blanket tariffs or quotas, which would encourage the development of non-competitive industries. Taiwan avoided the pitfalls of potentially developing an industry where it did not have a comparative advantage, or developing inefficient industries dependent on protection. This allowed Taiwan's firms to reinvest profits to develop the industry and repay debts. All to often countries target industries based on prestige rather than comparative advantage.
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