Research On Cross-Strait Trade And Impact On Economy Of Taiwan

Since the reform and opening up, especially after the speech of Deng Xiaoping's South Cruises, the economy of mainland sustained a rapid growth; meanwhile, the structure of international politics has changed, easing the relationship of mainland and Taiwan. On this background, Taiwanese gradually realize the magnitude of the market of mainland and thus the cross-strait trade is thriving. Up to 2005, the mainland is Taiwan's first export and second import market, while Taiwan ranks the seventh and fourth export and import market to Mainland China. Although the volume of cross-strait trade is increasing, the problem that the timeless delay of direct flight between two straits due to hampering from government of Taiwan has greatly affected the further development of cross-strait trade, In available studies of trade, it is fairly a small fraction that studies the cross-strait trade, and most of them are based on qualitative and unsystematic analysis. Therefore, it has theoretical value and realistic meaning to deeply analyze the current situation and developing potential of cross-strait trade and its impact on Taiwan's economy, especially the impact from direct flight, by means of a method combing qualitative and quantitative analysis.This paper reviews the related research development on cross-strait trade both home and abroad, briefly analyzes the developing history, current state, and characteristics of cross-strait trade, then quantitatively studies on the determinants and developing potential of cross-strait trade, and its impact on Taiwan's economy, especially the impact from direct flight, finally makes some conclusions through empirical studies and puts forward some countermeasures.This study indicates that it is the policy variable that causes the large trade surplus of Taiwan; in terms of increasing trade between two sides, the rising demand of mainland leads to an increase of export in Taiwan, while the increase of export of Mainland China due to rising competitiveness of its own goods is somewhat different. In terms of current conditions, the cross-strait trade is excessive by estimation through Gravity Model. However, direct flight can increase total volume of trade by $25.15 billion, an increase of $20.59 billon in export of Taiwan to mainland, while an increase of $4.56 billion in export of mainland China to Taiwan; this will increase GDP of Taiwan by approximately 15.7%, which is a big promotion to Taiwan's economy. It will do harm to both parts, especial the economy of Taiwan and the wealth of its people by hampering the "three links" across the strait. The government of Taiwan should follow the trend of promoting the "three links" across strait.