Globalization and regional economic integration are two major factors that have affected the world economy. Globalization speeds up capital flow, promotes cross-border activities and invites business competition.
The process of globalization has reshaped the global economic and trade structures and encouraged foreign direct investment (FDI). In response to new competition, FDI has been used by the business sectors of most economies as a strategy for development and expansion. To retain its economic competitiveness, Taiwan should embrace such a strategy.
Regarding the other factor, regional economic integration, it has been presented with two different dimensions, market-driven and institutional-driven. The market-driven dimension is about comparative advantages in the global arena.
The institutional-driven dimension comprises regional trade agreements, preferential arrangements, free-trade agreements (FTAs) and customs unions to strengthen various advantages. Among them, the free-trade agreement is the main form dominating all regional integration processes, and the FTA and FDI are actually closely related.
Taiwan has done some FDI and has been seeking to sign FTAs with its major trading partners. Taiwan began investing overseas in the 1980s.
Taiwanese companies decided to invest overseas include dealing with increasing domestic labor costs and facing with competition from foreign economies.
In the 1990s, many Taiwanese companies selected Southeast Asia as the target of investment; however, the East Asian financial crisis and the effect of a rising China led to a shift in Taiwan's investment from this area to China. It would be economically beneficial for Taiwan to diversify its FDIs and push for FTAs through FDIs.
A full analysis of Taiwan's FDI strategies, as well as the economic and trade relations between Taiwan and its FDI targets, is needed in order to negotiate better deals for Taiwan when signing bilateral economic treaties. It is also necessary to identify feasible ways to manage the potential impacts of globalization as well as regional integration.
The purpose can be extended to avoid risks, protect Taiwanese investors and explore business opportunities.
Several recent studies by the Taiwan Institute of Economic Research delved into the feasibility of Taiwan signing an FTA or bilateral investment treaty with other economies, analyzed the impacts on relevant sectors of Taiwan's investment in target areas, promoted trade and economic relations with other countries, emphasized the need to protect the rights and benefits of Taiwanese investors, and provided practical policy suggestions for the government.
Some study results showed that globalization and regional integration have brought Taiwanese businesspeople not only challenges but also opportunities. These two factors have jointly helped shape the nation's economic structure.
China has attracted many Taiwanese investments, but the Chinese government also has been pressuring Taiwan internationally. Therefore, Taiwan needs to sign FTAs with its trading partners to expand its international opportunities.
Moreover, efficiency-oriented vertical FDIs have gradually replaced market-seeking horizontal FDIs.
At the same time, economic and trade relations are presented in the form of division of international production.
These forms complicate bilateral trade relations that involve more imports and exports of intermediate goods and raw materials.
Taiwan might be able to use its FDIs as a means to push for signing an FTA with certain targets, but there are pros and cons.
Using FDIs to enhance the flexibility of investment strategies would help promote trade relations.
The cons are: a) it is not easy to convince investors unless the government's selected targets can provide value-added incentives; b) FDIs might not always be in alignment with government trade policies; c) a cluster effect caused by FDIs could dilute the expected effect of government FTA policies; d) FDIs might not be able to balance local stakeholders' interests; and e) Taiwan is not able to play the role of a leader in the global supply chain just yet, so using FDIs as a means may not be as effective.
As a general rule, investments invite two outcomes -- direct and indirect ones. Direct outcome includes encouraging capital flow, increasing returns and creating job opportunities.
Indirect outcome comprises technology and knowledge transfer and exports enhancement. It is suggested that Taiwan should seek to expand its investment and economic influences in countries other than China.
For example, India is interested in overseas financial services, so Taiwan could consider deregulating its financial markets and inviting India's investment in this area. The objective is to form a bilateral relationship. After all, strengthening economic relations with trading partners requires a sound scheme, and that scheme shall place FDIs as a good way to form potential FTAs.
Darson Chiu is an associate research fellow at the Taiwan Institute of Economic Research.
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry