Import substitution and export-led growth: A study of Taiwan's petrochemical industry

Abstract

In this paper, the study of Taiwan's petrochemical industry is used to discuss the validity of certain hypothesis concerning the economic success of the Asian newly industrializing countries (NICs). We find in the case of Taiwan's petrochemical industry that, in order to promote local upstream production, import substitution was a supplementary strategy in Taiwan's export-led growth. Moreover, and contrary to the neoclassical hypothesis, the state played a crucial role in the initial stage of the industry's development in the 1970s, and has continued to provide help and subsidies until the present time. This strategy was succesful insofar as export growth in the downstream sector was maintained. After 1982, the state increased its subsidies without significant effect on growth suggesting both the growing political clout this industry and a decline in the state's autonomy.