Why Taiwan's Economy is Not Hollowing Out

If you fear that the Taiwanese economy is hollowing out due to the massive relocation of its industries to mainland China, fear not.

According to T. J. Cheng in an article "China-Taiwan Economic Linkage: Between Insulation and Superconductivity", the purported "hollowing out" of Taiwan's economy proved to be a false alarm.

Why? Because outward FDI had contributed to industrial upgrading rather than decline, and had also brought Taiwan a high level of foreign exchange earnings. Furthermore, most medium and large firms active in outward investments have also continued to invest and expand their production in Taiwan.

And while it is indeed true that most companies which had relocated to mainland China had either reduced or terminated their production in Taiwan, their overseas operations did lead them to procure intermediate and capital goods from big firms in Taiwan.

As Cheng concluded: "Although the share of the manufacturing sector in Taiwan's GDP decreased and the share of the service sector increased, these developments were entirely expected. All matured economies in the West have gone through such structural changes."