Economic ideas and Taiwan's shift to export promotion in the 1950s

Abstract

Taiwan was the first developing country to adopt an export-oriented trade strategy after World War II. The factors usually associated with big shifts in policy-a macroeconomic crisis, a change in political power or institutions, lobbying by export interests, pressure from international financial institutions-were not present; it was ideas that were key. In 1954, economist S. C. Tsiang proposed that Taiwan boost export earnings rather than squeeze import spending to deal with its chronic shortage of foreign exchange. He recommended a currency devaluation to establish a realistic exchange rate and a market-based system of foreign exchange allocation to end the inefficient rationing by the government. Four years later, a policymaker, K. Y. Yin, fought for the adoption of Tsiang's proposal, helping to clear the way for Taiwan's phenomenal growth in trade. K E Y W O R D Sflexible exchange rates, foreign exchange, trade reform