7. Taiwan’s Economic Landscape

7.1. About Taiwan

7.1.2. Taiwan’s Geography

23 Taiwan Statistics Bureau

59 Figure 22 Taiwan’s Geography.

Taiwan has a dramatic mountainous central terrain with the highest point close to 4,000 meters in elevation.

Most flat and livable areas are concentrated in the west side of Taiwan.

North is where central government and financial institutes head quartered.

Most agriculture activities are in the south. Manufacturing are clustered in the middle region. The east side has light industries and agricultural activities. High-tech and semiconductor clustered in the Northwest area.

Taiwan has 3 important ports, Keelung, Taoyuan, and Kaohsiung.

The international airport for

passengers and goods is at Taoyuan City, Taichung, and Kaohsiung, and Taoyuan being the major airport.

Source: http://www.taiwan.gov.tw/ct.asp?xItem=126579&CtNode=3761&mp=1

60 7.1.3. Taiwan’ Economics

Figure 23 GINI’s Concentration Coefficient.

With a GINI of 0.342, a top 21 of the world but rising.

Source: Taiwan National Statistics Bureau, US CIA

Figure 24 Taiwan’s Income gaps.

Taiwan’s pay inequality is the highest in the top pay level.

The income gap widens in a faster pace after the 1980s. The 1990s marks the fastest widening period and leveled after 2000.

Source: Taiwan National Statistics Bureau

0 500 1,000 1,500 2,000

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Thousands

Earnings in 5 Divisions (NTD)

level 1, lowest level 2 level 3 level 4 level 5, highest

0.25 0.27 0.29 0.31 0.33 0.35 0.37

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Gini's concentration coefficient

61 Figure 25 Taiwan’s Unemployment Rate.

Taiwan’s

Unemployment Rate peaks at the year of 2009 right after the global sub-prime financial crisis. It starts to recover after some small fluctuations, and the largest

unemployment rate is the age group between 19-29.

Source: Taiwan National Statistics Bureau23F23F24

Taiwan in the 1990s had a fast economic rise. Wage gaps widened in a faster pace on the top 20% earning group (Figure 24). The1980s and 1990s are Taiwan’s memorable

decades. There were a few events forced Taiwan to change. One biggest event was that Taiwan became democratic in 1985. Taiwan made the top of the “Four Little Dragon”

Asian economies listed ahead of Korea, Singapore, and Hong Kong. “Made in Taiwan”

was displayed on American movies in the 1980s. Taiwan went prosperous in two ways.

Taiwan became an international trading nation, and Taiwan is close part of the production networks with Silicon Valley. Taiwan had brain drain from the 1970s to brain circulation in the 1990s (Saxenian, 2002, 2005). Taiwan became a computer kingdom in the 1990s.

This is when Taiwan’s earning gaps widened the most.

24 http://eng.stat.gov.tw/ct.asp?xItem=15761&ctNode=1609&mp=5 , selection on Major Indicators, retrieved on 3/13/2016

0 1 2 3 4 5 6 7

    2000     Aug.     2001     Dec.     2001     Sept.     2002     Mar.     2003     Feb.     2004     Apr.     2004     May     2005     Jan.     2006     Aug.     2006     Nov.     2007     July     2008     Ave.     2008     Oct.     2009     June     2010     Dec.     2010     Sept.     2011     Mar.     2012     Feb.     2013     Apr.     2013     May     2014     Jan.     2015     Aug.     2015     Nov.

Taiwan's Unemployment Rate

62

Taiwan’s Gross Domestic Product (GDP) per capita went from US$1 in 1936 (Gold, 1986) to US$23,456 in 2015 with a Purchase Power Parity (PPP) of US$45,854. It means that Taiwan’s inflation is well controlled, and currency is maintained for the country trading advantage that Taiwan has a balance of trade NTD138 Trillion (US$4.5

Trillion)24F24F25 at the end of 2015. Taiwan ranks 6th among the world trade surplus25F25F26 nations with US$64 Trillion current surplus in 2015, just behind the Netherlands.26F26F27 Taiwan’s current account is growing but the ranking is declining in surpluses. The decline is the first sign of warning.

Figure 26 Taiwan’s Current Account.

Taiwan’s Current Account Indicators shows that Taiwan is doing rather well especially after the 2008 financial crisis.

Economic data shows a deep dip in the 2009 but rebounded after 2010, but overall, it is on the rise.

Source: Trading Economics27F27F28

Taiwan’s innovation output ranks 4th highest behind US, Japan, and Germany, and has potentials to expand. Korea is a close economic competitor of Taiwan, and its growth is faster than Taiwan despite the per capita innovation is smaller. See below Figure 27 for Innovation Output.

25 http://www.tradingeconomics.com/taiwan/balance-of-trade

26 https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html

27 Taiwan’s Economic Decline_ Market Solutions Key to U.S (paper in literature directory); http://www.forbes.com/places/taiwan/ , what Forbes says about Taiwan.

28 http://www.tradingeconomics.com/taiwan/current-account, retrieved 3/14/2016

63 Figure 27 US Patents by Selected Countries.

Source: US Patent Office

During the financial crisis, TSMC had to lay-off some workers in early 2009, but rehired them back after one year and paid them pack all their loss wages.28F28F29 The two famous Taiwanese companies in the electronics industry are TSMC and Foxconn. One makes specialized semiconductor wafers, and another produces electronic products. They are both agglomerated from a small business startup in 1974 for Foxconn and 1987 for TSMC. The island economy has become an electronics production hub for the US and other parts of the world. Taiwan’s employment is closely tied to the landscape of

Taiwan’s industrial clusters. Electronics being a major part of the national income. These two companies are doing very well after the recession is over. Both companies rank very high on innovations and compete severely with Korean competitors. How about the rest of the clusters? How are they doing? Who are the winners and who are the losers? In the

‐4.00% 1.00% 6.00% 11.00% 16.00% 21.00% 26.00%

Patent per 100,000 Capita

Growth Rate 2006‐2011

Innovation Output ‐ US Patents Filing by Selected 

Countries

64

later Cluster Analysis (see Taiwan’s Economic Analysis), the employment gains and losses will be mapped with other growth rates to answer these questions.

Using the Figure 6 DSE system, the regional (Districts in this case) Cluster Scores are as follow.

Figure 28 Taiwan’s Regional Cluster ID Scores.

Cluster ID Scores

All

2LQ-LQ-ES-EG-RG-WG*

Traded Clusters 2LQ-LQ-ES-EG-RG-WG*

Local Clusters 2LQ-LQ-ES-EG-RG-WG*

North 3,019,005,031,043,040 2,013,003,022,033,030 1,006,002,009,010,010 Miao-Chu-Tao

Northwest 3,012,003,041,046,020 3,011,002,029,035,020 1,001,012,011,001 Middle 7,023,006,038,048,010 7,018,003,028,036,010 5,003,010,012,000 Southwest 7,029,004,035,043,020 7,020,001,024,032,020 9,003,011,011,006 South 4,022,006,032,043,030 3,012,002,022,031,020 1,010,004,010,012,010 East 10,013,006,033,042,000 7,005,002,023,031,020 3,008,004,010,011,000 Outer Islands 8,013,008,039,035,020 6,003,004,025,026,020 2,010,004,014,009,010 Taiwan total 61,005,000,000,000 46,003,000,000,000 15,002,000,000,000

* for Employment Shares 5% and over.

(2LQ=location quotient is 2; LQ=location quotient is 1; ES=cluster employment shares;

EG=# of clusters with employment growth; RG=# of clusters with revenue growth;

WG=# of clusters with wage growth)

To interpret the Cluster ID Score, say for North Region of all clusters,

3,019,005,031,043,040: Overall, Taiwan has 3 major traded clusters (IT, Ecommerce, Business Services), and 2 major Local clusters (Food, Health). The North region has 3 highly specialized clusters; 19 specialized clusters; 5 clusters with over 5% regional employment shares; 31 clusters with employment growths; 43 clusters with revenue growths; 20 clusters with wage growths.

For the Northwest region of Traded Clusters, 3,011,002,029,035,020:  From the traded clusters, the Northwest region is highly focused region with 3 highly specialized clusters (IT, Distribution and Ecommerce, Oil and Gas Production and Transportation), 11 specialized clusters, 2 (clusters IT and Distribution and Ecommerce) over 5% shares. 29 clusters are going employment; 35 clusters are going revenue, and 20 clusters wage rise.

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The Middle region is more evenly spread out in larger clusters. The Southwest has more varieties of specializations and more spread out in smaller clusters. The East and Outer Islands regions are mostly highly specialized clusters due to isolation and smaller populations.

7.2. Taiwan’s Specializations

Below is a Taiwan’s leading specialization landscape by the district-region, and the calculation is based on LQ>=1, Employment Shares >=5%

Figure 29 Taiwan Leading Specializations.

Source: LQ map, data from 2006-2011 Taiwan Census, Taiwan National Statistics Bureau

From the map, the 3 major Traded Clusters are concentrating in the northern regions, and Production Technology is in the middle region, and the rest spread out in the South and Outer Islands. This also tells the story that Taiwan’s major economic concentrations are

Distribution and Electronic CommerceBusiness ServicesFood Processing and ManufacturingConstruction Products and ServicesProduction Technology and Heavy MachineryHospitality and TourismInformation Technology and Analytical InstrumentsLocal Real Estate, Construction, and DevelopmentLocal Hospitality EstablishmentsLocal Food and Beverage Processing and DistributionLocal Health Services 0

1 2 3 4

Taiwan's Leading Specilizations

66

tilled toward to the north, but the Local clusters are tilled toward the south. Figure 30 provides the precise details in each district.

Figure 30 Taiwan’s Leading Specialization in Districts.

Districts Traded Clusters Local Clusters North Business Services;

Distribution and Electronic Commerce

Northwest Information Technology and Analytical Instruments

Middle Production Technology and Heavy Machinery

Local Health Services

Southwest Local Food and Beverage Processing and

Distribution;

Local Health Services

South Local Food and Beverage Processing and

Distribution;

Local Health Services;

Local Hospitality Establishments;

Local Real Estate, Construction, and Development

East Construction Products and Services;

Hospitality and Tourism

Local Food and Beverage Processing and Distribution;

Local Health Services;

Local Hospitality Establishments;

Local Real Estate, Construction, and Development

Local Food and Beverage Processing and Distribution;

Local Health Services;

Local Hospitality Establishments;

Local Real Estate, Construction, and Development

This provides a clear picture how Taiwan is mapped with the specializations. For the Traded clusters, the North region is primarily Business Centered with Services and Ecommerce. The Northwest region is heavily focused on IT. The Middle region is the Production Technology base. There is no primary focus in the South and Southwest regions. The East region is primarily Tourism and Construction Material Businesses. The Outer Islands region is small, isolated and diversified with limited clusters and four highly specialized industries.

For the Local clusters, the further one moves toward south, east, and outward, the more specialized local clusters, they are more diversified. The economic development is imbalance with Traded in north and Local in south. From the observation of IT cluster,

67

when a specialization agglomerates by employment shares in a populous city, it becomes a leading industry. The wages start to rise with employment growth rate slow down, the spillovers are most likely to the adjacent regions.

7.3. Evaluation Factors on Dynamics

Now we understand Taiwan’s specialized landscape. We can move forward toward dissecting the dynamics evaluations and the impacts to each city region. When the data contains a shock period, this gives an interesting perspective to see how Taiwan is surviving and its economic landscape shifts. There are some winners and some losers.

Once the data is cleaned and processed, we take the second step to calculate clusters’

dynamic and further run Pearson correlation on traded cluster growth rates among employment, revenue, and wages. The result correlates highly on all clusters with the exception of Outer Islands. (See Appendix - Pearson’s Correlation on Traded Clusters’

Growth Rates) The cluster map will echo the same findings. With the same correlation method, among the local clusters. The wage growths do not correlate with neither the employment nor the revenue growths, but the local employment and revenue growths correlate well. (See Appendix - Pearson’s Correlation on Local Clusters’ Growth Rates) Furthermore, a cluster map on the specializations and growths were created for each city to see the dynamics of the winning and losing clusters. Below defines the calculation formula of each factor.

7.3.1. Employment Factor

The first factor is employment. The employment size tells which cluster has more impact in the region and whether the region specializes in some clusters, and if a particular cluster is expanding with the regional workforce. A strong specialized cluster with high regional employment growth means the region is very competitive in that specialty.

The employment share is an indicator to gauge how attractive a cluster is in a region.

Calculating the shares can show how productive is the cluster in the region. Below is a pie-chart showing clusters’ shares in Taiwan. The top clusters are Distribution and Electronic Commerce, and Information Technology and Analytical Instruments that are

68

around 10% of the total employments. The third Traded cluster is the Business Services around 5% shares.

Figure 31 Taiwan’s Industrial Cluster Shares.

Source: calculation from Taiwan National Statistics Bureau Census Data, 2006-2011

Below is a list of job growth ranking with the calculation from Taiwan’s employment growth rate (CAGR) from the year 2006 to 2011, and followed by the shares of clusters.

10.1%

69 Figure 32 Traded Clusters’ Job Creation.

Note: Footwear is regrouped from Leather goods, therefore shows high growth.

Source: Taiwan National Statistics Bureau,

Five top declining traded clusters are Downstream Metal (-21%), Oil and Gas Production

& Transportation (-13%), Metal Mining (-12%), Jewelry and Precisions Metals (-11%), and Transportation and Logistics (-8%).

Five top growing traded clusters are Aerospace Vehicle and Defense (100%), Performing Arts (16%), Upstream Metals (14%), Business Services (10%), and Metalworking

Technology (9%).

The shares alone are not able to tell us the spillover effects, but once the cluster growth map is displayed, we can see more clearly which clusters grow with the similar rate especially to those value-chained clusters. Below is a more precise list of each city’s leading specializations. They are different from the District formations; they give more details landscape of the cities.

‐21% ‐13% ‐12% ‐11% ‐8% ‐3% ‐3% ‐3% ‐3% ‐2% ‐2% ‐2% ‐2% ‐2% ‐1% ‐1% 0% 0% 1% 1% 1% 1% 1% 1% 2% 2% 2% 2% 2% 2% 3% 3% 3% 4% 4% 5% 5% 6% 8% 9% 10% 14% 16%

DOWNSTREAM METAL PRODUCTS OIL AND GAS PRODUCTION AND … METAL MINING JEWELRY AND PRECIOUS METALS TRANSPORTATION AND LOGISTICS VIDEO PRODUCTION AND … MUSIC AND SOUND RECORDING NONMETAL MINING FURNITURE PRODUCTION TECHNOLOGY AND … LIVESTOCK PROCESSING TEXTILE MANUFACTURING WOOD PRODUCTS DISTRIBUTION AND ELECTRONIC … PLASTICS APPAREL PAPER AND PACKAGING PRINTING SERVICES RECREATIONAL AND SMALL … WATER TRANSPORTATION ENVIRONMENTAL SERVICES DOWNSTREAM CHEMICAL … AUTOMOTIVE LIGHTING AND ELECTRICAL … INFORMATION TECHNOLOGY AND … UPSTREAM CHEMICAL PRODUCTS INSURANCE SERVICES TRAILERS, MOTOR HOMES, AND … EDUCATION AND KNOWLEDGE … MARKETINGDESIGNAND … HOSPITALITY AND TOURISM VULCANIZED AND FIRED MATERIALS CONSTRUCTION PRODUCTS AND … COMMUNICATIONS EQUIPMENT … BIOPHARMACEUTICALS FINANCIAL SERVICES FOOD PROCESSING AND … FISHING AND FISHING PRODUCTS MEDICAL DEVICES METALWORKING TECHNOLOGY BUSINESS SERVICES UPSTREAM METAL … PERFORMING ARTS AEROSPACE VEHICLES AND … FOOTWEAR

T r a d e d   C l u s t e r s   J o b   C r e a t i o n

70 Figure 33 City Leading Specialization Landscape.

Source: LQ map, Excel calculation

Twelve specializations spread out throughout all cities. The North is where central government and banks located, therefore, business services and distribution industries are well developed. IT dominates around Hsinchu Science Park and research institutes as the result of earlier economic planning from the 1970s. Production technologies provide machinery supports clustered in the middle of Taiwan. Production products go to South regions. The tourism industry is mostly concentrated where mountain ridges, east and south shorelines, and outer islands. The outer islands are small, therefore, have limited industries, and the specializations support the local lifestyles. Below is the detail list of specializations in each city (See Figure 34).

Business ServicesDistribution and Electronic CommerceFood Processing and ManufacturingInsurance ServicesMetalworking TechnologyProduction Technology and Heavy MachineryUpstream Metal ManufacturingHospitality and TourismTextile ManufacturingInformation Technology and Analytical InstrumentsConstruction Products and ServicesWater Transportation 0

5 10 15 20

NewTaipeiLQTaipeiLQ KeelungCityLQ TaoyuanCityLQ HsinchuCountyLQHsinchuCityLQ MiaoliCountyLQ TaichungCityLQ ChanghuaCountyLQNantouCountyLQ YunlinCountyLQ ChiayiCountyLQChiayiCityLQ TainanCityLQ KaohsiungCityLQ PingtungCountyLQYilanCountyLQ HualienCountyLQ TaitungCountyLQ PenghuCountyLQ KinmenCountyLQ LienchiangCountyLQ

City Leading Specialization Landscape (Traded Clusters)

71 Figure 34 Taiwan’s Specializations in Cities.

Cities Traded Clusters Local Clusters

New Taipei Distribution and Electronic Commerce;

Information Technology and Analytical Instruments;

Local Real Estate, Construction, and Development

Taipei Business Services;

Distribution and Electronic Commerce;

Insurance Services

Local Food and Beverage Processing and Distribution;

Local Financial Services;

Local Hospitality Establishments;

Keelung Business Services;

Water Transportation

Local Food and Beverage Processing and Distribution

Local Food and Beverage Processing and Distribution

Local Hospitality Establishments Local Real Estate, Construction, and Development

Taoyuan Information Technology and Analytical Instruments

Hsinchu County

Information Technology and Analytical Instruments Hsinchu City Information Technology and

Analytical Instruments Miaoli Information Technology and

Analytical Instruments

Taichung Production Technology and Heavy Machinery

Local Health Services

Local Real Estate, Construction, and Development

Changhua Metalworking Technology;

Textile Manufacturing;

Upstream Metal Manufacturing

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

72

Nantou Construction Products and Services;

Hospitality and Tourism

Local Food and Beverage Processing and Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Yunlin Construction Products and Services;

Textile Manufacturing

Local Food and Beverage Processing and Distribution

Local Health Services

Local Real Estate, Construction, and Development

Chiayi County

Construction Products and Services;

Food Processing and Manufacturing

Local Food and Beverage Processing and Distribution

Local Health Services

Local Real Estate, Construction, and Development

Chiayi City Local Food and Beverage Processing and

Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Tainan Upstream Metal Manufacturing Local Food and Beverage Processing and Distribution

Local Health Services

Kaohsiung Local Food and Beverage Processing and

Distribution

Local Health Services

Local Real Estate, Construction, and Development

Pingtung Construction Products and Services Local Food and Beverage Processing and Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Yilan Construction Products and Services Local Food and Beverage Processing and Distribution

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Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Hualien Business Services;

Construction Products and Services;

Hospitality and Tourism

Local Food and Beverage Processing and Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Taitung Business Services;

Hospitality and Tourism

Local Food and Beverage Processing and Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Penghu Business Services;

Construction Products and Services;

Hospitality and Tourism

Local Food and Beverage Processing and Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Kinmen Business Services;

Construction Products and Services;

Food Processing and Manufacturing

Local Food and Beverage Processing and Distribution

Local Health Services

Local Hospitality Establishments Local Real Estate, Construction, and Development

Lienchiang Business Services;

Construction Products and Services;

Hospitality and Tourism;

Water Transportation

Local Food and Beverage Processing and Distribution

Local Hospitality Establishments

A Taiwan’s employment growth of each city is calculated to find out which city is

growing and which is declining during the financial crisis. Below is the map for Taiwan’s employment composition.

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Figure 35 Taiwan’s Employment Growth Composition.

Source: calculation of Census data from Taiwan National Statistics Bureau

Taipei City has the largest employment among all the cities with the second highest pay.

It is big enough and dense enough for the importance. This is where political-social-economic capital sits and all the banks are headquartered. It is a financial center for all businesses, and international negotiations are mostly done here. The high-density city provides a close distance and the convenience for business doing. The smallest employment population is in Lienchiang County that is an outer island.

From Figure 35, two cities are losing jobs, which are Keelung 0.5%) and Taitung (-0.8%). Two cities have high growth of more than 5%, and they are smaller cities of Kinmen and Penghu; these cities have many tourists from China due to ECFA open trade policy. Miaoli is the city that has the fastest growth on Taiwan. Edward Glaeser suggests that important knowledge spillovers are more likely to happen between industries rather

NewTaipei, 0.86%

75

than within the industries (Glaeser, Kallal, Scheinkman, & Shleifer, 1991; Jacobs, 1970).

On the contrary, Miaoli is an evidence of the spillovers effects on the same industry but in the adjacent cities due to the saturation effect. Miaoli is enjoying a 4.5% job growths, and this is an adjacent city of Hsinchu Science Park. IT is the dominated industry in Miaoli, thus spillovers from Hsinchu area. Additionally, five cities have 2% to 3% job growth, and they are Taichung, Taoyuan, Hsinchu County, Pingtung, and Chiayi. These cities have the production support industries. Other cities have a slow growth less than 2%. The major metropolitans are still growing employments. Despite the GDP had a sharp drop in the year of 2009, a big part of Taiwan has recovered from the external shock with the exception of Keelung and Taitung.

Once the growth rates of each city are identified, the next is to find out which clusters in each city are doing better and which are not. The specialization provides the

concentration of clusters in that particular city. In other words, we would like to find out which clusters made the best contribution, and which one has lost the momentum and needs help. The more specialize the cluster, the more important this specialization is for

concentration of clusters in that particular city. In other words, we would like to find out which clusters made the best contribution, and which one has lost the momentum and needs help. The more specialize the cluster, the more important this specialization is for

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