Identifying the sources of growth in Taiwan's manufacturing industry

Abstract

Using aggregate and two‐digit manufacturing industry data from Taiwan this article reconfirms the existence of strong external economies among industries, and shows that these external economies can be largely attributed to the economy‐wide trade‐induced learning generated from opening trade with developed countries. The trade‐induced learning accounts for about half to three‐quarters of the measured external effects in Taiwan's two‐digit industries. We also find that imports and exports of machinery from and to developed countries (mainly the USA and Japan) bear the greatest trade‐induced learning for Taiwan's manufacturing industries. As trade has both factor accumulation and productive efficiency effects and both effects are likely mutually reinforced, we find that over 40 per cent of output growth of Taiwan's manufacturing during 1975–90 is due to trade‐induced learning which is not explained by the total factor inputs, denoting changes in technology or total factor productivity.