Immediately following World War II, Taiwan was still a predominated agricultural economy with half its labor force employed in agriculture and about 44 percent of net domestic product generated in that sector. However, basing on the infrastructure left behind by Japanese, a strong agriculture foundation and the capital assistance gathered from the United States, Taiwanese remarkably developed the pre-condition for economic takeoff. They successfully managed agriculture to provide a considerable net capital flow to non-agriculture. Consequently, Taiwan moved from an agriculture-based economy in the late forties and fifties to a semi-industrialized one by the early seventies, and is presently reaching the stage of a full-fledged industrialization.
During the structure transformation, international trade played a crucial role, which had function of push and go fueled by the long term rate of capital accumulation and technical change. Certainly, for a country like Taiwan, which is relatively small and not particularly well endowed with a range of natural resource, the gain from trade must be very helpful in its economic evolution. When Taiwan's modern growth epoch began in the 1950s, the dominant strategy chosen was import substitution. On the one hand, it imported raw materials to produce commodities needed. On the other hand, it protected the domestic industries. Around 1960, because of the success of relatively neutral incentive policies, which had supported import substitution, domestic market had been satisfied for many goods. The prospects of further using import substitution strategy were considerably less rosy. As a result, Taiwan made a critical decision, switching import substitution to export-oriented strategy, which altered the structure of production. Via exporting, Taiwan has generated the incomes to allow saving and investment on the scale required to raise per capita about tenfold in thirty years. Eventually, international trade, the engine of...
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