2. Literature Review and Theoretical Approach
2.3 Theoretical Approach
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points that may have a role in the Taiwanese banking systems disproportional international influence.
2.3 Theoretical Approach
All academic works need to base themselves in the existing literature where possible and also connect to an existing framework from which a topic can be understood, this paper will be written predominantly from the stand point of Liberal Economic Theory. Adopting a theoretical approach ensures the final result can be easier connected to the current understanding of a topic as well as most crucially it offers critics a standpoint on which to build criticism. Only through continual constructive criticism can ideas be built upon and strengthened. Liberal Economic Theory has been adopted as it encourages free hand economic practices where by market principals of competition, quality, and efficiency are responsible for driving economic
development. When this is related to the banking sector it argues that greater regulation and state involvement in the industry will lead to a lack of efficiency and competition internationally as banks are protected at home. The Taiwan SOB dominated banking sector can be seen as such.56 State Owned Banks are seen to be far less efficient than the private counterparts in part because of the protection their relationship with the government provides.57 Alternatively, it is argued if the government is less involved in the sector then natural competition will result in the most efficient banks that profit the most and offer the best services will begin to acquire their weaker less efficient rivals without government encouragement to do so.58 The difficulty thus rises in establishing where one must draw the line between too much and too little involvement in the
56 Appel, H. "The Ideological Determinants of Liberal Economic Reform: The Case of Privatization", Cambridge University, 2000.
57Chen, P. and Liu, P. "Bank ownership, performance, and the politics: Evidence from Taiwan", Economic Modelling, vol. 31, pp. 578-585, 2013.
58Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007
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sector.59 As seen in the literature, it is wise for the government to keep at least one strong State Bank that can be used when needed to finance important government projects that offer the chance to build the national economy.60 Another line must be considered when looking at how much the government should look to protect its own domestic banking sector against larger foreign rivals. While the Taiwanese market is heavily banked, no one local bank can rival the size of the larger Globally Systemically Important Banks from outside. The competition can therefore to seen not to start from a level playing field.61 Throughout the paper, this argument is continued, focussing on the role of the government in relation to the international
competitiveness of Taiwanese banks.
In connection to this issue the author will also look at the path the Taiwanese government has taken with their banking sector to improve the banks’ ability to operate domestically and
internationally. Specifically, we will look for points of ‘Critical Juncture’, these are points where government has made choices to take one path that has resulted in a series of actions and
decisions that are ultimately based in one earlier decision. The theory argues that the longer an actor has followed a certain path the higher the losses will be if the actor later wishes to change paths.62 The author has already identified the point where Taiwan began to liberalise its banking sector and grant licensees to private banks without privatising state banks as one of those critical junctures, that was a step toward creating a liberal free market economy but also a decision that
59Schuman, M. "State capitalism vs the free market: Which performs better? | TIME.com", TIME.com, 2011. [Online]. Available:
http://business.time.com/2011/09/30/state-capitalism-vs-the-free-market-which-performs-better/. [Accessed: 15- Jul- 2017].
60 Hwang, D. and Wu, W. "Financial system reform in Taiwan", Journal of Asian Economics, vol. 18, no. 1, pp. 21-41, 2007.
61Vives, X. Competition and Stability in Banking. Princeton: Princeton University Press, 2016.
62Soifer, H. "The Causal Logic of Critical Junctures", Comparative Political Studies, vol. 45, no. 12, pp. 1572-1597, 2012.
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created a situation of over banking.63 Identifying these points of critical juncture is essential to ensure one understands the decisions of the past and their modern day implications.
The final theoretical concept the author finds both valuable and necessary to the research to include is the issue of ‘Salience’. Frankel wrote about the importance of identifying issues of salience in his book National Interest.64 For this research, this will be a crucial point, by identifying which issues are salient to which actor, the author hopes to show how the issue of international competitiveness of the Taiwanese banking sector is being framed and tested for solutions. Much of the research focuses on finding issues of salience and connecting their importance to the research question to give greater clarity, understanding and depth to a multi-faceted and complicated issue.
63 Tan, A. "The Politics of Financial Reform in Taiwan: Actors, Institutions, and the Changing State", Asian Affairs: An American Review, vol. 36, no. 4, pp. 201-212, 2009.
64Frankel, J. National Interest. London: Macmillan, 1970.
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