| Direct foreign investment (DFI) has become a primary vehicle for technology transfer and capital movement from advanced countries to Third World countries. While DFI may not be a necessary condition for economic growth in developing countries, foreign capital and advanced technology certainly facilitate their economic growth one way or another. Taiwan's successful economic development over the past decades has been widely recognized. In the early stages of Taiwan's economic development, foreign investment contributed to capital accumulation and foreign exchange surplus. In the case of Taiwan, even though DFI is not as important as often thought, there is no doubt that it has been quite important in Taiwan's economy, not to mention its political implication. In searching for the factors causing the changes in the trends and features of DFI, current literature only considers demand-side effects (i.e., the host country's political stability, healthy economy, and inexpensive labor force) and economic factors while excluding supply-side effects (i.e., multinational's investment strategy, and its home government's attitude toward overseas investment) and political and social mechanisms. Accordingly, the primary objectives of this study are threefold. The first is to understand the major factors that determine the inflow of DFI in Taiwan. The basic argument that I make in this regard is that both demand and supply-side effects are equally crucial in affecting inward DFI. The second is to search for insights on the differences among foreign investors who have brought capital into Taiwan. Regional differences such as market orientation, ownership structure, the size of investment project, and sectoral difference among these investors, especially American, Japanese, and overseas Chinese, are a major concern in this regard. Finally, this study attempts to understand the momentum for changes in the nature of DFI. It argues that if change in the trends and features of inward DFI is the primary dependent variable we want to explain, the structural factors, which include both domestic and international political and socio-economic mechanisms, are the fundamental independent variables to explain this change. |
