Industrial development and economic growth: Implications for poverty reduction and income

5.4 Taiwan Province of China
Like Korea, Taiwan has experienced rapid economic growth over the past
half century. The average annual growth rate during that period has been 8.4
per cent, reaching almost 10 per cent in the 1960s and 1970s (Liang and
Mei, 2005). Economic growth has been heavily based on the growth of man-
ufacturing, and from the 1960s onwards on export-orientation. At the out-
set, the country specialized in labour-intensive production and later shifted
towards capital-intensive and high-tech production. 
As in Korea, government intervention in Taiwan has also been remark-
able. In the 1950s, the development strategy was one of import substitution,
but in the 1960s, policy started to change towards export-orientation. Over
the years, and especially before the 1990s, government policies included

---

309
Industrial development and economic growth
extensive use of tariffs and non-tariff barriers on imports (especially in agri-
culture), selective credit policies favouring preferred sectors, a government-
led push for exports of manufactures, sectoral industrial policies to support
specific industries, and the promotion of state-owned firms (see e.g. Noland
and Pack, 2003). The government also set up special industrial parks, in
which several privileges, like duty free imports of materials, were provided for
occupant firms. Policies have also included the establishment of institutions
designed to identify, transfer, diffuse and absorb foreign industrial technolo-
gies and undertake innovation (Noland and Pack, 2003), in order to ease
Taiwan’s transfer to high-tech production. 
Taiwan’s post-war growth pattern has to a large extent been one of
growth with equity. Already in the 1950s, when rapid growth and industri-
alization were at the beginning, Taiwan had a much more equal income dis-
tribution than many other developing countries. Major land reforms intro-
duced after the war which reduced inequality and rural poverty are one of the
reasons. From the mid-1960s onwards, income inequality further declined
due to low inequality of wage income as a result of rapid growth of employ-
ment in export-driven, labour-intensive manufacturing industries. Demand
for all types of labour was at that time expanding, but demand for low-skill
workers was expanding at the fastest rate. Average wage rates rose and, as the
wages of low-educated workers were rising faster than higher educated ones,
wage differentials narrowed. In addition, due to improvements in education,
the supply of higher educated workers was relatively high, which decreased
marginal returns to education (Chu 1995, Kanbur 2000). However, in the
1980s the development of skill-intensive sectors pushed up wage inequality,
while the share of capital and property in total income increased. This was
linked to the increasing importance of larger private enterprises and escala-
tion of land values (Kanbur, 2000; Cornia and Kiiski, 2001). In general, eco-
nomic growth in Taiwan has been associated with even less income inequal-
ity than in Korea. In Korea, capital-intensive industries and large conglom-
erates were favoured over light industries, whereas in Taiwan SMEs have had
greater importance.