Development Strategy and Export-Led Growth: Lessons Learned from Taiwan's Experience

Abstract

This paper investigates Taiwan's development strategy from both demand-side (policies that bias production incentives against domestic market demand and toward exports) and supply-side (policies that favour tradable against service or non-tradable sectors) perspectives. In the early stages of Taiwan's economic development, the strategy mix increased overall factor productivity by reallocating resources from the less productive (service or domestic) sectors to the more productive (manufacturing or exporting) ones and helped achieve the goal of reaching global markets through the exploitation of comparative advantage. However, as the Taiwanese economy developed, government intervention turns out to be ineffective because of how it distorts resource allocation, in particular a neglect of services sectors.