Telecommunications Policy 23 (1999) 235}243

ICT and economic development in Taiwan: analysis

of the evidence夽
Eunice Hsiao-hui Wang*
Department of Information and Communication, College of Informatics, Yuan Ze University, 135 Yuan-Tung Rd, Nei-Li,
Chung-Li, 320, Taiwan

Abstract

The I¹-led development strategy adopted by Taiwan has been greatly recognised by other Asian newly
industrialised economies (NIEs) in their own NII initiatives. This paper discusses the impact of ICT on
economic growth in Taiwan based on longitudinal data over 16 years. It highlights the joint impact of
national IT capabilities and national IT investment on economic growth, and the "ndings imply that the
payo! e!ect of IT investment on economic growth can be achieved only through a robust national
information infrastructure that supports IT adoption and application.  1999 Elsevier Science Ltd. All
rights reserved.

Keywords: Taiwan; ICTs; IT investment; IT adoption; Economic development

1. Introduction

One of the most notable economic developments in the last decade has been the rapid increase in
the ICT sector's share of investment activity and of the economy. The use of ICT has revolution-
ised the structure of management and the nature of competition in the emerging global economy.
Thus, ICT adoption is now a central part of strategic planning by organisations seeking into
engage in the emerging digital economy.
At the national level, this burgeoning world-wide information economy driven by the convergence
of computing and telecommunications, o!ers growth opportunities for newly industrialised

夽
This paper is a revised version of a presentation made at the Twelfth Biennial Conference, organized by International
Telecommunications Society, Stockholm, Sweden, June 21}24, 1998.
*Tel: 886-3-4638800 ext. 648; Fax: 886-3-4638277; email: hsiao@saturn.yzu.edu.tw.
ICT: Information & Communication Technologies, includes computing and communications.

0308-5961/99/$ - see front matter  1999 Elsevier Science Ltd. All rights reserved.
PII: S 0 3 0 8 - 5 9 6 1 ( 9 9 ) 0 0 0 0 5 - 1
236 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243

economy (NIEs) as both users and suppliers. Recently, NIEs have shifted their policy emphasis
from IT production to IT use in order to encourage pervasive ICT applications throughout
government agencies and private industries, and thus transform themselves into information-
intensive societies.
This paper examines NIEs as ICT users and examines the impact of ICT di!usion on economic
growth. What policy measures can be implemented to stimulate ICT adoption and hence economic
growth?

2. Industrial evolution in Taiwan

The signi"cant role that Taiwan's government has played in promoting IT production and IT
use usually is recognised as an initiating mechanism (Simon, 1993), which never downplays the
close interaction with the private sector. Taiwan is succeeding in using information technology as
an integral part of a centrally planned economic growth strategy. Taiwan has been widely
recognised as an East-Asian development model for the aggressive e!ort in strengthening indigen-
ous advanced technologies.
Taiwan's economic development emphasis shifted from labour-intensive exports of the 1960s
(e.g. textile), to heavy and chemical industry in the 1970s (e.g. plastics), and then to high-tech and
knowledge-intensive industry in the 1980s and 1990s (e.g. IT equipment and services). The
government of Taiwan or of other Asian NIEs has emulated the role played by Western Europe
and Japan in the innovation process and industrial development (OECD, 1994).
East-Asian NIEs all share a political commitment to industrial transformations. Taiwan's
government initiated its science and technology (S&T) development policies in the late 1970s and
has promoted national IT investment since the early 1980s. In 1994, Taiwan introduced a 10-year
National Information Infrastructure (NII) project, aimed at upgrading Taiwan as a telecommuni-
cations hub in the Asian-Paci"c region.
Companies in Taiwan are investing heavily in information technology in order to seize global
opportunities and counter competitive threats. This paper aims to more fully examine the impact of
ICT on an East-Asian NIE (such as Taiwan), and to o!er new insights to policy leaders, business
managers and researchers in other Asian newly industrialised economies and less developed
countries.

3. Impact of ICT di4usion on economic growth

The spread of innovations produces most of the economic bene"ts of a new technology; the
contribution of information technology to an economy is expected to be predominantly through its
adoption and applications. To a large extent, the importance of infrastructure } such as railways
} would be most demonstrated through the accompanying institutional and social change (North,
1990). The di!usion of ICT throughout all industries is far more important than the production of
ICT industries per se.
The starting point for this paper is that pervasive IT di!usion may be conducive towards
economic growth. The convergence of computing and telecommunications was perceived as one of
 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243 237

the most important trends in ICT. At the beginning of the 1990s, computer networks were widely
used, and increasingly contributed to the globalisation of economic activities. The computer
networks in convergence with telecommunications, commonly referred to as information infras-
tructures, are now viewed as fundamental and critical bases for future economic and social
development. The current initiatives include National Information Infrastructure in the United
States, Program for the Establishment of Info-communications Infrastructure in Japan, and
European Information Infrastructure Program for European Communities.
The long-heralded convergence of information, computing and telecommunications technolo-
gies is taking place in OECD countries and in East-Asian NIEs, and will be occurring in other
NIEs and developing countries in the immediate future. This growing technological convergence is
particular formidable in the case of assessing ICT use and makes it di$cult to measure the impact
of ICT on labour productivity and economic growth.

4. An IT-capabilities-enhancing approach

This paper looks at the impact of ICT on economic growth. This does not necessarily imply
a direct relationship between IT policies and economic development, but rather looking to see
whether the implementation of IT policies creates a robust infrastructure which favours national IT
capabilities and IT investment.
Given information technology as a frontier example, this study re#ects the perspective that
e!ective government policies on enhancing national technological capabilities may contribute to
facilitating adoption in IT at the macroeconomic level. Innovation improvements by IT investment
undertaken by the industry sector may enable economic growth as a whole.
Upgrading national technological capabilities is often viewed as a critical factor when explaining
innovation success (Nelson, 1993). Those elements embedded within national technological capa-
bilities can provide a useful indication for technology di!usion. Three elements emerging from
comparative analysis among countries are } investment in human resources, policy decentralisa-
tion and providing incentives for R&D. A central feature of innovation performance is a country's
technological infrastructure } its system of education and training, its public and private research
laboratories, its network of scienti"c and technological associations. Thus, technology policies
cannot be assessed independently from their institutional context.
The research model is presented in Fig. 1.

5. Research design

This paper concerns an important issue } the joint impact of national IT capabilities and
national IT investment on economic growth. The research hypotheses characterise the relation-
ships among national IT capabilities, national IT investment and economic growth. The research
hypothesis states that these two sets of independent variables } national IT capability factors and
national IT investment } together would pay o! for economic growth.
The variable of human resources deals with education and training, which are measured by
two indicators (1) tertiary education enrolment as % of total population and (2) enrolment of
238 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243

Fig. 1. Research model.

college/university level students in science and technology "elds per 1,000 population. The variable
of R&D is measured by (3) R&D expenditure as % of GDP; telecommunications infrastructure is
measured by two indicators (4) main telephone lines per 100 population and (5) sales as % of GDP.
The level of national IT investment is measured by (6) average annual IT spending per organisation
nation-wide in 1000 NT dollars. Economic growth is measured by (7) GNP per capita in NT
dollars. The data collected for each variable over a period of 16 years from 1980 to 1995 is
descriptively shown in Tables 1 and 2.

6. Research results

As shown in one-year lagged model, two-year lagged model, and three-year lagged model, the
indicator (telephone main lines) serves as a stronger predictor of economic growth over time. The
"ndings, thus, support the premise that it takes time to build up telecommunications infrastructure
and achieve an accumulated payo! (Cronin et al., 1993; Wang, 1997). The data also revealed that
human resources in science and technology appeared to be a stronger surrogate than education for
measuring overall human resources. One possible explanation exists: IT use is inherently asso-
ciated with strong demands of technology-intensive professionals. Furthermore, as presented in
those three time-lagged models, &teledensity' or &main telephone lines per 100 inhabitants' tended to
be a more e!ective proxy than telecommunications sales for measuring the impact of telecommuni-
cations infrastructure on economic growth.

6.1. Strategy priorities of IT-led development and NII

The "ndings of multiple regression analyses discussed above suggest that Taiwan's economic
development can be most explained by &S&T human resources' and &basic telecommunication

The data shown in Table 1 were obtained from the (1) Chunghwa Telecom, (2) Directorate General of Budget,
Accounting and Statistics of Executive Yuan, (3) Institute for Information Industry, (4) Ministry of Education, (5)
National Science Council, (6) 1996 Taiwan Statistical Data Book, and (7) 1996 Statistical Yearbook of R.O.C.
 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243 239

Table 1
Variables for data analysis

Year Education S&T human R&D Basic telecom Advanced IT Spending GNP per
resources telecom (in 1000 NT capita (in
dollars) NT dollars)

1980 1.92 9.08 0.70 13.00 1.55 $9,285.28 $84,518

1981 1.98 9.33 0.93 15.49 1.51 8,743.50 98,716
1982 2.04 9.33 0.89 17.44 1.68 7,237.46 103,841
1983 1.64 10.43 0.91 19.25 1.80 7,177.97 112,928
1984 1.69 10.86 0.95 20.70 1.75 14,348.07 124,151
1985 1.75 11.33 1.01 21.89 1.78 15,762.45 129,274
1986 1.78 11.72 0.98 23.27 1.72 12,157.54 151,148
1987 1.84 12.34 1.12 24.89 1.59 12,552.72 168,832
1988 1.96 12.90 1.22 26.72 1.64 10,351.55 182,511
1989 2.11 13.67 1.38 28.89 1.75 13,805.20 201,402
1990 2.27 14.61 1.65 30.88 1.90 15,348.49 218,092
1991 2.42 16.00 1.70 33.26 1.94 17,284.33 240,909
1992 2.60 17.14 1.78 35.66 2.04 20,051.92 263,420
1993 2.75 18.13 1.76 37.87 2.15 19,923.25 286,385
1994 2.87 19.01 1.80 40.15 2.17 19,352.38 306,846
1995 2.98 19.56
1.81 42.96 2.16 19,915.31 329,522

In#ation adjustments to 1991 NT dollars.

Projected number.

services' over time. Although this study does not "nd IT use present a direct positive contribution
to economic growth, it implies that the strategy of IT-led development in Taiwan would be more
e!ective if the policymakers focus on investing in telecommunications infrastructure and human
training rather than on encouraging industries to spend more in IT. In other words, the e!ect of IT
use on economic growth can be achieved only through a strong national information infrastructure
that supports IT applications and use in Taiwan or in other Asian NIEs.
Looking into the immediate future, developing countries will be facing what Ohmae's (1991)
&borderless world' describes: a world of intense open competition. The government and private
sector have to work closely together to enhance national competitive advantage. The better
a nation's technological capabilities, the better its chances of strengthening competitiveness.
OECD (1992) reports that while some countries like East-Asian NIEs (Hong Kong, Singapore,
South Korea, and Taiwan) have clearly improved their capacity to acquire and adapt a wide
variety of information technologies, this was certainly not the case for the great majority of
developing countries.
Technology is by no means the sole reason for the rapid economic growth of East-Asian NIEs.
There may be policy lessons to be learned from the experiences of East-Asian NIEs undertaking
structural change in areas such as technological change. Something similar to what Taiwan has
experienced might recur in one or more second-tier NIEs like Thailand and Malaysia, although
probably on a modi"ed basis. With respect to education, for example, most NIEs are well aware
that upgrading formal education is critical to the e!ective use of IT. Yet only the East Asian NIEs
240 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243

Table 2
Multiple regression of GNP per capita on average national IT expenditure per organization and national IT capability
factors, 1980}1995

Independent variable B Beta ¹

Variables in the stepwise regression

(in the entered order)
Current year model
S&T human resources 18543.26 0.83 7.15
Enhanced telecom !35034.67 !0.10 !3.07
Basic telecom 2753.56 0.32 3.04
IT investment !1.22 !0.07 !2.44
R"0.9977, F"1664.30
Durbin}Watson"2.78
One-year lagged model
S&T human resources 17579.85 0.75 4.95
Enhanced telecom !41165.66 !0.11 !2.54
Basic telecom 3220.06 0.35 2.50
R"0.9951, F"948.23
Durbin}Watson"2.09
Two-year lagged model
Basic telecom 5342.72 0.54 3.80

S&T human resources 14121.00 0.55 4.01

Enhanced telecom !46595.61 !0.11 !2.85
R"0.9947, F"824.23
Durbin}Watson"1.82
Three-year lagged model
Basic telecom 6350.19 0.61 3.59

S&T human resources 13145.35 0.47 4.01

Enhanced telecom !45168.31 !0.09 !2.84
R"0.9950, F"811.73
Durbin}Watson"1.59

p(0.05,
p(0.01, p(0.001.

have invested heavily in upgrading educational levels and developing IT professionals. Hence, how
to e!ectively implement &learned' IT promotion policies in their national contexts will be another
challenge to policymakers in second-tier NIEs.
More important, in an economy that has been undergoing structural change to become more
information-intensive, the government needs to prepare the overall labour force to adapt to
changing information technologies. This study therefore advocates the view that it is equally
important to upgrade the &general' or &social sciences' type of education to better prepare the
labour force for the emerging information society. This study suggests that the fruitful
&production' of human resources in science and technology "elds is the key to enhancing economic
development.
 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243 241

Another in#uential element of predicting economic growth is telecommunications infrastructure.

Telecommunications networks would be considered as a key infrastructure component for IT-led
development. Thus, the increased investment in telecommunications should be integral to the IT
policies and the current NII initiative.
Results from the study support the general recognition that policy competence among other
growth variables contributes extensively to the development of most East-Asian countries.
Stemming primarily from a strategy of I¹-led development, a great number of Asian countries have
recently introduced initiatives in launching national information infrastructure (NII), aimed at
leapfrogging toward the information society through increasing IT di!usion and encouraging IT
production (see Table 3).

6.2. The current development NII

In August 1994, the NII steering committee introduced a 10-year national information infra-
structure (NII) project, aimed at upgrading Taiwan as a telecommunications hub in the
Asian-Paci"c region. The NII steering committee formulated a &National Information and Com-
munications Infrastructure Action Plan' under the Executive Yuan in December 1997.

Table 3
Asian NII initiatives

Country Launching time NII initiatives/time frame Steering Agency Investment

(billion US$)

Singapore April 1992 IT 2000-"ber to National Computer Board 2.65

building/full-service cable
network by 2005
Taiwan, ROC August 1994 NII 2005 } broadband NII Steering Committee 10
infrastructure
South Korea 1994 Korean Information Ministry of Information and 57.9
Infrastructure (KII) } Communications
broadband infrastructure
installed by 2010
Japan May 1994 National broadband Telecommunications Council 330}550
infrastructure by 2010 of the Ministry of Posts and
Telecommunications (MPT)
Thailand 1995, IT year IT 2000 } broadband access National IT Committee 18
by 2002
Malaysia February 1991 Malaysian information Ministry of Technology 30
superhighway } "ber to the home
by 2020
China 1992, 1995 China NII } broadband net MPT, Ministry of Electronic 200
delivering over a million Industries, etc.
telephone channels by 2020
242 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243

This Action Plan is aimed at initiating seven fundamental tasks of NII including the regulation
reform adapted to promote the NII development. Two new law drafts were introduced in order to
create a regulatory framework covering new services such as the electronic commerce (EC).
A undergoing reform of regulation is gearing up for removing inconsistencies and avoiding
discrimination within and across sectors, and further for creating the right environment for the NII
development (See Table 4).
Regarding building telecommunications networks as a key component for implementing a ro-
bust NII, the Ministry of Transportation and Communications recently has promised to end the
state-owned Chunghwa Telecom's monopoly on basic telecommunications services (including

Table 4
Regulatory reform adapted to promote the NII initiatives

Regulation Purposes/objectives Legislation progress

Digital Signature Law To ensure the secure transactions for the The draft was completed in August 1998.
(newly drafted) growing Electronic Commerce
Freedom of Release of suitable government information The Ministry of Justice completed the draft
Government to the public at the end of 1997 which is currently
Information Law under review by the Executive Yuan.
(newly drafted)
Criminal Law To deal with crimes happening on the Amendments were passed by the Legislature
Internet such as unauthorised access in August 1997.
into a computer system
Telecommunications To increase the foreign investment ratio The draft is currently under review by the
Act for Type 1 services up to 60% and to Executive Yuan.
further liberalise the telecommunications
sector
The Cable Television To allow the cross-ownership of cable TV The amendments were passed by the
Law operators and telcos Legislature in January 1999.
Trademark Act To clarify lawful use of a trademark on The draft is planned to be processed to
the Internet the Executive Yuan at the end of 1998.
Banking Act To ensure the security of the use of The draft is currently under review by
electronic wallet (electronic cash) the Executive Yuan.
Copyright Act To deal with the issues relating to The amended draft will be completed by
reproduction and use of content March or April 1999.
on the Internet
Arbitration Act To allow contracts to be arbitrated over The draft is currently under review by
the Internet the Legislature.
Computer-processed To regulate the use of personal data The amended draft was completed in
Personal Data collected over the Internet April 1998.
Protection Act
Income Tax Law To allow the public to "le the income tax An experimental project was implemented in
Business Law return over the Internet April 1998. The revisions will be completed
by the year of 2000
 E. Hsiao-hui Wang / Telecommunications Policy 23 (1999) 235}243 243

local, long-distance and international markets) two years early than its original schedule. Two or
more new "xed full service licenses will be issued in 1999, and thus full competition in basic
telecommunications services will be o$cially allowed from the year 2001.

7. Conclusions

Taiwan's information industry development plans implemented in 1980s and 1990s epitomise
how the government policy mechanisms enact the notion of IT-led development in most East-
Asian countries.
Results from the study strongly support one of the recurring view shared by Asian NII leaders:
the payo! e!ect of ICT on economic growth can be achieved only through a robust national
information infrastructure that supports ICT adoption and applications. Asian economic crisis has
given serious impact on the regional industrial development. Taking Asia as a whole, I¹ sector
seems not so much battered as other industries (Aizu, 1998). This fact also upholds the view that the
positive contribution of ICT to a region or a nation in maintaining its global competitiveness.
In 1998 World Competitiveness Report, Taiwan scored the 16th place among 46 countries for its
global competitiveness, still far behind Singapore (2nd) and Hong Kong (3rd) but ahead of Japan
(18th), Malaysia (20th), China (24th), Philippines (32nd), South Korea (35th), Thailand (39th), and
Indonesia (40th). Overall Taiwan has demonstrated great performance in science and technology,
infrastructure, management, private sector, labour force and governmental functionality while
most Asian countries have been tormented by the aftershock of the 1997 economic crisis.
In pursuit of continuing economic development, Taiwan will need to put more e!orts into
leveraging S&T human resources through training, and increasing physical investment in telecom-
munications when implementing national information infrastructure as a strategy toward ad-
vanced development in the long haul.

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