Taiwan is an interesting case study in economic management. Like us, Taiwan's growth strategy is export-led, with the main drivers of Taiwanese growth being electronics, and electronics-related industries.
Like us, Taiwan was a 'Tiger Economy', in that it industrialised and developed quickly after the 1970s. Like us, Taiwan was badly hit by the Great Recession. In the middle of 2009, Taiwanese officials were forecasting a drop in GNP of around 8%. In 2009, however Taiwanese real GDP fell year on year by only 1.87% as a result of a downturn in exports. (Students of macro should be hearing the Y=C+I+G+X-M mantra in their heads about now.) In 2009, Ireland's real output fell year on year by 7.5%.
Like us, Taiwan experienced a deflation in 2009. Taiwanese unemployment at the end of 2009 was 6%, up from 4%. Ireland's is currently above 13%. However, when it comes to unemployment, you're not comparing like with like: the Taiwanese welfare system is not as generous as Ireland's. For example, in Taiwan those who have paid into the Taiwanese equivalent of PAYE and PRSI for over five years but less than 10 years, the entitlement period is 12 months' unemployment assistance in 10 years. So not as generous at all, really. Moving on.
This chart shows the year on year change in GNP for Taiwan (at current prices). I got the data here.
The bars in red are yearly changes, the bars in blue are quarterly changes. Look at the last two years. We see a downturn similar to Ireland's in the first three quarters of 2009, with a truly spectacular and unexpected last quarter of growth. Once again: in the middle of 2009, Taiwanese officials were forecasting a drop in GNP of around 8%. In fact, the Taiwanese downturn in GNP was closer to 1.5%, and now the economy is forecast to grow strongly in 2010. For 2009 as a whole, Taiwan’s real GDP decreased by 1.87%. Net exports contributed 1.48% to the change in real GDP. Even though real domestic demand declined by more than 3%, they are tigers once more. Compare once more with Ireland: between the third quarters of 2008 and 2009, Ireland’s employment level fell by 9.6%, while its labour force declined by 3.5%. This compares with a decline in employment of 2.3% in the EU-27 countries while the size of the EU-27 labour force remained static in the year to Q4 2009.
What is so different about Taiwan? Well, firstly and most importantly, Taiwan is running a huge current account surplus, as it almost always has, so small scale and large scale stimulus programs were going to be possible when a downturn came. Here's one: Taiwan introduced a voucher system in early 2009 in response to the downturn. The voucher was for around 75 euro, and allowed millions of Taiwanese people the chance to increase their domestic consumption over the period of the downturn. No doubt this measure kept many businesses afloat during the period, and kept expectations from falling lower than they might have otherwise. A large current account surplus, a counter-cyclical fiscal policy, simple expansions of public works schemes and textbook Keynesian demand stimuli, coupled with the export-led recovery buoyed by other economies' stimulus programmes (notably China and the US, Taiwan's two biggest trade partners), and a demonstrable lack of a housing bubble, mean that our Taiwanese cousins are back in the black after 9 months. Ireland unfortunately must endure several years of nil-to-sluggish growth before getting out of its doldrums. Taiwan is a mirror for what Ireland 'could' have done with its Tiger riches. I think it is a case study for the kind of fiscal rules Philip Lane would like to put in place for Ireland.
Taiwan is a mirror for Ireland in another way--they are aging. As I've argued elsewhere, an aging population places stresses upon any economy. Taiwan's population is today aging at the same rate ours will in 20 years, and, combined with a low birth rate of around 1 child per family, the number of people over 65 already accounts for 10.6% of the island's total population as of the end of 2009. We will have Taiwan's demographic structure in a few years. If you don't believe me, read my book, or look at Aidan Kane's visualisations of Ireland's demographic pyramid.
Was there a use by date on the vouchers. If the vouchers have played a role it could show that "ricardian equivalence" does not hold. Well at least not for consumers in taiwan
Hi Brian, they had to use it within 9 months of getting the voucher, exactly to avoid the Ricardian Equivalence problem. Many of them used the voucher as a spur to release further savings. For example, two people I spoke to used the 3600 Taiwan Dollars (about 75 Euros) to buy laptops, by adding the vouchers to their existing savings. So the vouchers freed up a fair amount of capital, resulting in the consumption multiplier effects you'd expect from a simple Keynesian stimulus like this.
Surprising though that they did put any discriminatory condition with the vochers. Tawians people must be very free trade-ish or vested intersts very weak. The exported led recovery is happening when the new tawian doller is apprciating agaist the dollar.
Taiwanese authorities were lauded for not being discriminatory--but the nation is so open it was much of a muchness, as it would be for us.