Taiwan: Inward Foreign Direct Investment and Its Policy Context

Taiwan has long maintained an explicit policy of attracting inward foreign direct investment (IFDI) as part of its growth strategy, although inflows have been subject to various restrictions. The primary objective of Taiwan’s stance toward FDI was initially to attract export-oriented investment based upon the competitiveness of its highly educated and productive labor force. More recently, this objective has been modified to focus on attracting FDI into increasingly technology-intensive areas and to encourage or promote domestic technological spillovers. In recent years, although Taiwan’s IFDI stock has more than tripled, from US $20 billion in 2000 to US $64 billion in 2010, it remains a relatively small recipient compared with its neighboring economies in the Asia-Pacific region. Annual IFDI flows to Taiwan have been in single-digit US $ billion during 2000-2010, with a peak of US $7 billion in 2007 followed by a steady decline during 2008-2010. In 2010, Taiwan received inward FDI of US $2 billion only. It is, however, generally seen that the release of prohibition against mainland China investors on June 30, 2009, and the newly signed landmark cross-strait Economic Cooperation Framework Agreement (ECFA) on June 30, 2010 will reinforce Taiwan’s robust investment climate and stimulate IFDI.