Good Research Paper About Taiwan Economy And Government Intervention

Type of paper: Research Paper

Topic: Economics, Taiwan, Government, Politics, Economy, Banking, Finance, Investment

Pages: 6

Words: 1650

Published: 2020/12/09

Taiwan is an economy that has been ranked in the 19th position I the entire world on the basis of Purchasing power parity. In addition, it is ranked in the 18th position in terms of GDP at purchasing power parity (Fuller, Douglas and Murray 34). In terms of the economic freedom equality, Taiwan economy ranks 5thb in Asian Pacific Countries and 18th in the entire world. When compared to the neighboring markets, Taiwan Economy is comprised of Small and Medium sized Businesses, unlike in countries like South Korea where their economy is made of large business groups. It is a capitalist economy. Taiwan has been in good business relations with China and since the 1990s their business collaborations have grown unlimitedly. Most of the Taiwan companies have invested billions of dollars in PRC, similarly, Taiwanese most of the labor force have been absorbed to work in the PRC.
According to Gereffi, Gary, and Donald (234), the global financial crisis that affected most countries in the world did not isolate Taiwan. The crisis started in America back in the year 2007. The consequences of the economic crisis to the economy of Taiwan are that unemployment levels have been raised significantly by 5.9%. In addition, the Economic Growth has fallen to -2.9%. This paper shall be focusing on analyzing the Government intervention after the crisis. In the research paper, we shall research on the policies that Government instituted to ensure an economic growth with more than 10% by the year 2010 (Huang et al. 223).This is the highest economic growth to have been recorded for a period of 30 years. The paper shall also examine the factors that lead to the international trade skyrocketing with more than 39%, and the job market rose significantly with more and more businesses being ready to recruit. Details on what motivated IMF in the year 2010 to declare Taiwan's GDDP-PPP to surpass those of economic giants such as Finland, France, and Japan shall also be elucidated.

Government intervention

Financial Market Structures
Taiwan can be defined as an economy that has registered a rapid economic development, but their financial systems are still repressed. The financial sector is a critical sector of which the government has taken keen interest on. Before the intervention, the entire financial sector was characterized by monopoly. Still in the late 80s and early 90s a large percentage of the bank’s assets were still under the state control (Ding, et al. 557). Consequently, in the Taiwan economy, there erupted a crisis of excess liquidity. The excess flow of cash was as a result of trade surpluses; these in turn lead to a decrease in the interest’s rates charged by banks for savings and deposits. As a result, there emerged a fraudulent market that lead to illegal money dealers enhancing conservation services for more than 3 million people. It is clear that in the year 1989 alone, approximately 23 billion US dollars were invested in the black market. Consequently, the cash invested in the black market earned an interest of 10% per month as compared to the Government regulated interest rates for saving deposits that ranged from 4.25% per year.
In the late 1980s, the Taiwan investment locations became disparaged most precisely the stock exchange. The reasons for this phenomenon can be traced to the China Central Bank policies that were conservative in nature. The conservative character of the policies made it almost impossible to transfer property to other countries. To avert the crisis, the Government of Taiwan came up with feasible policies and reforms in the early 1990s. The measures and reforms targeted banks, financial sectors, and the stock exchange (Yu, Hsin-Yi, and Brian 134). The reforms were diverse, and they included liberalization and deregulation of the financial market in Taiwan. The process is still ongoing to date, and these are what have caused the great changes in Taiwan economy.
Additionally, going back to the year 1950, the Central Government of Taiwan had come up with a program dubbed “Nineteen-Point Economic Plan”. The plan was meant to support and revive the economy. One of the approaches in this plan was to make the stock exchange to become the relevant capital market; however the first initiative would have to form the stock exchange. The significant role played by the stock market was to support the growing Taiwanese economy. Consequently, on 23rd October 1961 (Rodrik, Dani 30). Taiwanese stock exchange was instituted and started trading on February 9th 1962 with 18 companies as startup.

Policy issues

According to Thompson, Grahame (364) it is evident from the above discussion that Taiwan Government was quick to act. Also to intervene in the financial market and work out issues that were derailing the development of the economy. Consequently, the financial market policy that was to ensure an outstanding economic growth was put at the Central Bank that was made of conservative policies. The Central Bank was characterized by a high degree of autonomy. CENTRAL Bank ended advocating unhealthy control over the financial and monetary policies that included the ownership of banks. In addition, any capital addition was completely sealed and did not take place. Considerably, economists have explained that when a Government applies excessive and unwarranted regulation, it will always result in a misallocation of the resources, inefficiency, and corruption. However, according to the economists, this scenario only appears partially to Taiwan.
Two factors were applied to stabilize the Taiwan economy, firstly was the credit policies that had been established by the Government. Secondly, is saving mobilizations. The two processes were so much famous and successful. Despite the fact that Taiwan received donations from USA and Japan after the World War II, majority of the economic development have been as a result of domestic savings (Fields 48). The Government through legislated program offered loans and grants to specific sectors of the economy sourced from commercial and development banks. The Government intervention was the biggest gift to be accorded to the Taiwan economy. After its intervention, the financial savings in the banks were increased. Consequently, real savings were available within the country that is useful to local investors. In addition, this is a good chance to help the Government come up with a powerful tool for industrial policy. After the World War II, Taiwan Government had interests in regulating the economic development. The Government initiatives were meant to stabilize the domestic agricultural sector (Boestel et.al. 56). Additionally, the Government had targeted to construct industries that would be used as a substitute for the imports that were causing the country a lot of losses. The Government interventions were successful; various initiatives were established to completion. Firstly, is the textile industry; secondly is the development of the high technology industry that took place in the 1980s. Lastly was the formation of chemical/ industry and engineering sector. Later in the 1990s, the Government had put the primary focus on the development of the telecommunication industry and the tertiary sector that included the finance sector.
However, considering from 1980s to 1990s, it is undisputable fact that Taiwan has been able to move through strong tides of economic and political pressure (Chung, Chao-Chen 1056). This is a result of a relatively outward-oriented strategy. The country has moved from trading partners who were increasing the flow of currency in the economy to the international financial institutions that had a wider say on the Global market conditions. Later the economy went through the Government interventions to enhance the availability of credit through institutionalized policies and to open financial markets to attract the foreign investors. Taiwan Economy was majorly maintained by the domestic savings and transactions. However, there is another powerful network group made of Chinese, who initialized liberalization and internationalization of the financial markets. The process of liberalization of the Taiwan economy had been substantial and stopped at some times.

Conclusion

The Government of Taiwan has played their responsibilities effectively and efficiently. If it were not for the Government intervention, the Taiwan economy would have collapsed to an extent that it would take decades to rebuild the economy again. Government policies are the most effective methods of controlling the economy. In addition, the country has gone through multiple problems but luckily in the end, it has been possible to control the economy and alienated some of the things that limited the of the economy.

Works Cited

Boestel, Joanna, Penelope Francks, and Choo Hyop Kim. Agriculture and economic development in East Asia: from growth to protectionism in Japan, Korea and Taiwan. Routledge, 2013. Print.
Chung, Chao-Chen. "Government, policies-making and the development of innovations' system: The case of Taiwanese pharmaceutical biotechnology policies (2000–2008)." Research Policy 42.5 2013: 1053-1071. Print.
Ding, Cherng G., Chiu-Hui Wu, and Pao-Long Chang. "The influence of government intervention on the trajectory of bank performance during the global financial crisis: A comparative study of Asian economies." Journal of Financial Stability, 2013: 556-564. Print.
Fields, K. J. "Not of a Piece: Developmental States, Industrial Policy, and Evolving Patterns of Capitalism in Japan, Korea, and Taiwan." East Asian Capitalism: Diversity, Continuity, and Change 2012: 46-67. Print.
Fuller, Douglas B., and Murray A. Rubinstein, eds. Technological transfer between the United States, China, and Taiwan: Moving Knowledge and Skills. Vol. 10. Routledge, 2013. Print.
Gereffi, Gary, and Donald L. Wyman, eds. Manufacturing miracle: path of industrialization in Latin America and East Asia. Princeton: Princeton University Press, 2014. Print.
Huang, Chien-Hsun, Ching-Ping Tang, and Chung-Yuan Chiu. "Democratisation and the Common: Politicization and Institutionalization Adaptation of Irrigation Governance in Taiwan." 2013. Print.
Rodrik, Dani. "The Pasts, Present, and Future of Economic Growth." Challenge 57.3 (2014): 5-39.
Thompson, Grahame, ed. Economic dynamism in the Asia- Lu, Shu-Shiuan. "East Asian growth experiences revisit from the perspectives of a neoclassical model." Review of Economic Dynamics 15.3, 2012: 359-376.
Yu, Hsin-Yi, and Brian GM Main. "Political Interventions, Corporate Governance and Firms' Performances: Empirical Investigations in Japan and Taiwan." Accounting and Finance Research 1.1, 2012: p134.

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