Mon, Mar 03, 2008 page8

• Taiwan's economy is not bad off

  • By Hwan C. Lin 林環牆
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  THE DIRECTORATE GENERAL of Budget, Accounting, and Statistics recently announced that Taiwan's real GDP growth rate reached 6.86 percent in the third quarter of last year and was 6.39 percent in the fourth quarter. This means that the annual economic growth rate increased from 4.89 percent in the previous year to 5.7 percent -- above South Korea's 4.9 percent.

  During the Democratic Progressive Party's (DPP) first four-year term from 2000 to 2003, economic growth averaged 2.9 percent annually, while in its second four-year term, growth rose to 5.3 percent. These changes are significant for several reasons.

  First, the accusation that the economy has ground to a halt during the DPP's eight years in office is untrue. Second, the accusation that the DPP has enforced isolationist policies during its terms in office is a lie. If the DPP's policies had been isolationist, the related growth of export and manufacturing could not have become the main driving forces behind Taiwan's economy. Third, the accusation that Taiwan's international competitiveness has fallen behind Singapore's and South Korea's is also unfounded.

  On Apr. 24 last year, the Chinese-language Economic Daily News sarcastically called the period between former president Lee Teng-hui's (李登輝) "no haste, be patient" policy and the DPP's terms in power the "10 lost years" of Taiwan's economy. I have previously criticized this argument and now that Singapore's and South Korea's statistics have become available, a comparison would be illustrative.

  It has been 11 years since the implementation of the "no haste, be patient" policy in 1997. Singapore's real GDP growth rate during that period averaged 5.6 percent a year, South Korea's 4.4 percent and Taiwan's 4.5 percent. Apparently Singapore's was the strongest -- but only on the surface.

  During the same period, Singapore's population grew by 2.01 percent annually, while Taiwan's and South Korea's only increased by 0.55 percent and 0.61 percent respectively. If the population growth rate is deducted from real GDP growth rate, then the real GDP growth rate per capita becomes 3.96 percent for Taiwan, ahead of 3.83 percent for South Korea and 3.55 percent for Singapore.

  In the eight years of DPP rule, South Korea's real GDP per capita grew by 4.6 percent, ahead of Singapore's at 4.01 percent and Taiwan's at 3.65 percent. Looking at the DPP's second four-year term, Taiwan's real GDP per capita growth rate rose to 4.9 percent. Though this is slightly lower than Singapore's 5.28 percent, it is ahead of South Korea at 4.38 percent. It is difficult to observe any systemic evidence that Taiwan has lagged behind its two rivals.

  As for Singapore, its economic growth potential is between 4 percent and 6 percent, data from its trade and industry department shows, equivalent to Taiwan's 5 percent. However, Singapore's distribution of income has worsened considerably: its Gini coefficient, an indicator of distribution of wealth between 0 and 1, where higher numbers indicate greater disparity, outstripped the US in 2006 and reached 0.485 last year.

  As for South Korea, its terms of trade has worsened in successive years, causing real income to be grossly overestimated based on GDP. Regarding this issue, I have provided detailed estimates of this in the Liberty Times (the Taipei Times' sister newspaper).

  The latest statistics from the Central Bank of South Korea show the terms of trade index for the country continued to deteriorate last year, dropping 4.1 percent below the previous year and dipping to its lowest point since 1988. The reason is that import prices are rising whereas South Korean semiconductor and electronics export prices continue to decline.

  On Feb. 18, Chosun Iibo advised the South Korean government to prioritize the problem: in the fourth quarter last year, South Korea's real GDP expanded by 5.5 percent compared to the previous year, but real GDI -- real income -- was only 2.4 percent, after deducting losses from terms of trade.

  Both presidential candidates have been admiring Singapore's and South Korea's economic performance. However, Taiwan, Singapore and South Korea are all similarly facing the challenge of a development bottleneck.

  Hwan C. Lin is a research fellow at the Taiwan Public Policy Council and associate professor of economics at the University of North Carolina at Charlotte.

  TRANSLATED BY ANGELA HONG
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