Extract

1 Bee-Yan Aw Like many developing countries, the earliest and most common sources of new technology for Taiwan were foreign direct investment (FDI), joint ventures, licensing agreements and, more indirectly, technology embodied in imports of new capital goods. During the period from 1960 to the mid1970s, the process of acquiring and using foreign technology was facilitated by the availability of an educated labour force as well as the emphasis on the production of goods using relatively simple technologies. However, over the past two decades, with the rapid growth of real wages, the focus has shifted to new industries characterized by more capital- and technologyintensive processes. This development implies a significant increase in the demand for improved or new local technological capabilities among firms. In the quest to stimulate private firms to increase R&D and training activities, various government incentives were enacted in 1983 and 1984 to enhance the profitability of such activities and to reduce the risk to investors. The Ten Year Science and Technology Development Plan (1986–95) called for R&D expenditures to rise from 1.04 per cent of GNP in 1986 to 2 per cent by 1995. It also called for an increase in the share of the private sector in total R&D from 40 per cent to 60 per cent in this period (Dahlman and Sananikone, 1990; Hou and San, 1990). In Section 1 we document the initial conditions of Taiwan’s economic development and the role of government policy in the early...