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close this bookEmerging World Cities in Pacific Asia (UNU, 1996, 528 pages)
close this folderPart 2. Changing Asia-Pacific world cities
close this folderGlobalization and the urban system in Taiwan
View the document(introductory text...)
View the documentIntroduction
View the documentThe nature and development trend of the national urban system
View the documentStructural change
View the documentThe spatial dimension of economic structural change
View the documentThe international dimension of the urban system
View the documentThe impact of globalization on the mega-city of Taipei
View the documentPolicies and policy implications
View the documentConclusion
View the documentNote
View the documentBibliography

The international dimension of the urban system

The rate and pattern of Taiwan's urbanization have been influenced more by national and international economic trends than by planning or public policy. This situation can be seen in table 6.16. When exports grew at a rapid rate, so did industry. The growth rate of the urban population almost paralleled those of exports and industry, except for the period 1953-1960. The level of urbanization increased with industrial development.

Urbanization in Taiwan has been the consequence of industrialization, and industrialization has been driven by exports. Export growth, in turn, has been induced by foreign effective demand. That is, Taiwan's urban system has been significantly influenced by changes in the international economy and the globalization of economic growth.

Overseas (private foreign and overseas Chinese) investment and technology transfers have helped to promote Taiwan's industrialization. Given Taiwan's abundance of labour but lack of capital and technology in the early stage of economic development, the policies promoting both labour-intensive agriculture and labour-intensive manufacturing were well conceived. At the same time, the government also established policies to continue improving the investment climate and encouraging an inflow of overseas capital and technology. There were many incentives and guarantees for overseas investors, such as the establishment of industrial districts, export-processing zones, and an industrial-scientific park, and the introduction of a five-year income tax holiday and accelerated depreciation.

Overseas investment

During the 39 years from 1952 through 1990, overseas investment in Taiwan totalled US$13.25 billion. By area of origin, Japan was the source of US$3.68 billion, or 28 per cent of combined foreign and overseas Chinese investment; the United States trailed in second place with US$3.29 billion, or 25 per cent; followed by Europe with US$2.01 billion, or 15 per cent. Overseas Chinese contributed US$1.95 billion, or 15 per cent of the total.

This inflow of capital made a significant contribution to Taiwan's economic development and the formation of its urban system. Most overseas capital was invested in large-scale manufacturing, including capital-intensive, technology-intensive, and higher value-added industries, and in urban infrastructure, such as housing, power, and transportation. Statistics show that over 60 per cent of overseas investment in Taiwan is concentrated in electronic and electrical products, chemicals, services, and machinery, equipment, and instruments (table 6.17). These products are also Taiwan's major exports and are produced in urban areas. The growth of export industries has spurred both industrialization and urbanization.

Table 6.17 The top four recipients of overseas investment, 1952-1990


% of total overseas investment

Electronic & electrical products






Machinery, equipment & instruments


Source: See table 6.16.

Table 6.18 Distribution of multinational corporations in Taiwan, 1989 (%)



Taipei City



Kaohsiung City



Kaohsiung County



Taiwan Area



Source: Industrial Development Bureau, Ministry of Economic Affairs, "Overseas Investment Statistics," 1990.

Moreover, statistics for the year 1989 show that 65 per cent of the multinational corporations operating in Taiwan are based in Taipei. In addition, 57.22 per cent of their investment is concentrated in that city, although Kaohsiung and provincial cities have also received foreign capital investment (table 6.18). Since technology always follows foreign investment, it is understandable why Taipei is Taiwan's leading city.

The formation of Taiwan's 20 largest cities has been the consequence of industrial and service agglomeration. The sites of these cities correspond to the locations of Taiwan's top five export-oriented manufacturing industries: textiles and garments, electrical machinery and apparatus, machinery, metal products, and chemicals. According to a correlation analysis of export-oriented industries and city spatial distribution, the correlation coefficient between these two variables was larger than.7 for 1966, 1976, and 1986 (table 6.19), and the effect of globalization (in terms of exports) on city spatial distribution is growing over time.

Some will question whether multinational corporations have significantly affected the formation of Taiwan's large cities as they have in respect of primate cities in third world countries. The multinational corporations operating in Taiwan export over half of the products they produce on the island. This is especially true of the multinational corporations from the United States and Japan. Although considerable overseas capital has flowed into Taiwan and is concentrated in Taipei (accounting for about 3-7 per cent of Taiwan's total capital formation during 1952-1990, as shown in table 6.20), it has been insufficient to stimulate the formation of a primate city in Taiwan.

Table 6.19 Correlation coefficient spatial distribution between the employment of export oriented industries and population


Correlation coefficient







Table 6.20 Capital invested by multinational corporations as a percentage of Taiwan's capital formation, 1952-1990 (%)


Capital formation (NT$ million)

Capital from multinational corporations (NT$ million)

Per cent





















Source: Calculated from CEPD, Taiwan Statistical Data Book, 1991.

Technology transfer

Industrialization has been the driving force behind economic growth in post-war Taiwan. An increasing ability to adopt new technology is one of the most important factors behind industrialization. The adoption of technology involves the successful introduction to the market-place of improvements in the transformation of inputs into outputs. Improvements cover activities ranging from the imitation of existing products with mature technologies to self-starting technology-based innovations. Such improvements are an integral part of the process of economic development.

Manufacturing was for many years the most dynamic and fastest-growing sector in Taiwan owing to technology transfer from advanced countries. Rapid increases in industrial output - in particular, the sequential growth of the textile and electronics industries - provided the basis for self-sustaining economic growth. Manufacturing's contribution to real gross domestic product increased at an average annual rate of 12.0 per cent between 1962 and 1990. Within manufacturing, the most dynamic subsectors were the export-oriented textile, garment, and electrical and electronics industries, which experienced annual real growth rates of 10.1, 13.3, and 20.3 per cent, respectively. These significant differences in growth clearly reflect the dynamic process of change made possible by new economic opportunities and technological innovations. Channels for the adoption of technology include overseas investment and technical cooperation with foreign high-tech enterprises. The most popular method is technical cooperation projects between foreign firms and companies in Taiwan, including the transfer of technical know-how and patent licensing. The major reason for setting up export-processing zones was to transfer and diffuse new technology. The diffusion of technology from the developed world favours modern, large-scale urban industries and thus promotes city growth. New high-tech industrial parks and science parks will be built to further promote technological progress and innovation in Taiwan.

The internationalization of business

Limited natural resources and a small domestic market meant that Taiwan had to export to achieve fast growth. Foreign trade became the major driving force of rapid economic growth. In the 1950s, foreign trade was small, grew slowly, and was consistently in deficit. At the turn of the 1950s, the government adopted export-oriented development policies, including fiscal and monetary policies to facilitate the rapid structural transformation of local industries and to encourage exports. Annual exports subsequently rose from US$200 million in 1961 to US$2 billion in 1971, a tenfold increase over 10 years. Foreign trade produced a surplus. By 1988, the Republic of China's total exports had risen to over US$60 billion, representing a 302-fold increase over a period of 27 years. The rapid export growth has made Taiwan 13th among the world's major exporters. On the other hand, Taiwan's imports also rose rapidly, from US$300 million in 1961 to US$50 billion in 1988, making Taiwan the 16th largest importer in the world.

Exports accounted for 8.6 per cent of gross domestic product(GDP) in 1953, when the government launched the First Four-Year Plan. The share gradually increased and reached its peak at 58.1 per cent in 1986, then decreased to 47.7 per cent in 1990 owing to a rise in international protectionism. Imports were 13.8 per cent of GDP, higher than exports, in 1953. The share grew steadily and reached 30.4 per cent in 1970, almost equal to that of exports. Imports as a percentage of GDP peaked at 53.7 per cent in 1980, decreasing to 42.2 per cent by 1990 (table 6.21).

Table 6.21 Exports and imports as a percentage of GDP, 1953-1990

























Source: Directorate-General of Budget, Accounting, and Statistics (DGBAS), Statistics of National Income, 1991.

Table 6.22 Small and medium-sized enterprises as a percentage of total business establishments, 1971 and 1986

Year tertiary industry

Secondary and Manufacturing


97.77 91.50


97.52 91.09

Source: DGBAS, Report on the Industrial and Commercial Census, Taiwan-Fukien Area, The Republic of China, 1973 and 1988.

Foreign trade is vital to Taiwan's economy, and most enterprises are trade oriented, especially those in manufacturing. As mentioned above, almost half of Taiwan's domestic production is exported. Most export products are produced by small and medium-sized establishments (with fewer than 50 workers), and such establishments accounted for about 91 per cent of manufacturing establishments in both 1971 and 1986 (table 6.22). The implication is that there has been a close relationship between world demand and the development of small and medium-sized enterprises in Taiwan. Furthermore, because of Taiwan's sound infrastructure, convenient transportation, well-developed communications, the transfer of commercial skills from trading companies, and the predominance of small and medium-sized enterprises, Taiwan's business establishments are well dispersed throughout the island. This has helped promote an even distribution of cities and accelerated the urbanization of medium-sized cities. The medium-sized cities comprise prefectural cities, the administrative centres of counties, and the satellite cities of metropolises.