Industrial Technology Upgrading and Innovation Policies: A Comparison of Taiwan and Thailand

Abstract

The question of why some developing countries succeed in catching up technologically with developed countries while others fail to do so has attracted considerable interest among academics and policy makers. Since the notion of 'middle-income trap' emerged in the mid-2000s, the question has grown even more popular. This paper aims to contribute to knowledge of this issue by examining the cases of two East Asian countries, Taiwan and Thailand. Taiwan is now a high-income economy with GDP per capita of $22,000 in 2015, while Thailand has been trapped at middleincome country status, with GDP per capita of $5,400 in the same year. The two countries are selected here because although they differ in economic performance, their economic and political backgrounds are rather similar. Both started serious industrialization in the 1950s, and both faced serious security threats from communist regimes during the Cold War. Taiwan had major conflicts with Mainland China and Thailand was a front-line country in the fight against communism in Southeast Asia. Both countries are mid-sized in terms of population (sixty-five million and twenty-three million in Thailand and Taiwan, respectively). Both have sizable, quite successful agriculture sectors. Importantly, both countries joined global production networks of transnational corporations (TNCs), especially Japanese firms, after the Plaza Accord in 1980s. While recognizing the significance of other economic, political and social factors of catching-up, such as human resources, macroeconomic management, and various types of policy, this paper focuses primarily on the comparison of policy on technology, innovation, and industrial upgrading. Another main focus is the manufacturing sector, where technological upgrading and innovation are critical. The structure of the paper is as follows. We will provide an overview of the evolution

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