State Entrepreneurship, Foreign Investment, Export Expansion, and Economic Growth

Abstract

We employ vector autoregression to test for direct Granger causality among state entrepreneurship, foreign investment, export expansion, and economic growth in Taiwan. We infer hypotheses about the relationships among these variables from the developmentalist, dependency, and statist perspectives, which suggest varied and often contradictory expectations about the presence or absence, and about the sign and direction of causality among these variables. We found that Taiwan is a unique case and differs from the findings reported in previous research on Brazil and Ireland. The island's state entrepreneurship has been “Granger caused” by its own recent history as well as the recent history of GNP performance. In turn, state entrepreneurship has had a causal impact on export expansion. But state entrepreneurship has not been influenced by and has not influenced either economic growth or foreign investment. In addition to state entrepreneurship, foreign investment and economic growth have affected Taiwan's export expansion. The inflow of foreign investment has been caused by both endogenous (that is, this variable's own recent history) and exogenous (Taiwan's past export successes) sources. All other suspected causal linkages fail to be substantiated by our analysis. Accordingly, state entrepreneurship has evidently acted as a key nexus in the operation of the internal, but not external, market forces in Taiwan, thus supporting and contradicting central arguments of all three perspectives on political economy.