Taiwan After World War II - Economic Growth

Economic Growth

During the post-war period, Taiwan was lacking in goods and materials, the economy was depressed, and inflation was severe. After the national government moved to Taiwan, agriculture was first to grow, and, in 1953, Taiwan's economy returned to its pre-war level. After this, the government pursued a policy of "Nurture industry with agriculture"(以農養工) on the foundation established during Japanese rule. With the capital, manpower, and skilled labor that was in Taiwan, American aid, etc., Taiwan's economy progressively moved toward rapid growth. In the 1950s, the government carried out an import substitution policy, taking what was obtained by agriculture to give support to the industrial sector, trading agricultural product exports for foreign currency to import industrial machinery, thus developing the industrial sector. The government raised tariffs, controlled foreign exchange and restricted imports in order to protect domestic industry. By the 1960s, Taiwan's import exchange industry was faced with the problem of saturating the domestic market. At the same time, the factories of some industrialized nations, because of rising wages and other reasons, slowly moved to certain areas that had both basic industry and low labor costs. Consequently, the economic policy of Taiwan changed to pursue export expansion. In 1960, the government enacted the "Regulations for Encouraging Investment," actively competing for foreign business investment in Taiwan. In 1966, the government established the Kaohsiung Export Processing Zone, Asia's first export processing zone, to expand the manufacturing production. In the role of a manufacturing relay station, Taiwan became a link in the international system of division of labor. In 1963, the proportion of Taiwan's economy occupied by industry exceeded that of agriculture. From 1968, Taiwan maintained two-digit long-term annual average economic growth up until the 1973 oil crisis. In 1971, Taiwan had a foreign trade surplus and continued from then on in an export state.