ICT & Economic Development Taiwan

Telecommunications Policy 23 (1999) 235}243

ICT and economic development in Taiwan: analysis of the evidence 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 e ct of IT inve invest stme ment nt on econ econom omic ic grow growth th can can be achi achiev eved ed only only thro throug ugh h a robu robust st nati nation onal al 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. Intro Introducti duction on

One of the most notable notable economic developments in the last decade has been been the rapid increase in the ICT sector's share of investmen investmentt activity and of the economy. The use of ICT has revolutionrevolutionised 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 national level, this burgeoning world-wide world-wide informati information on economy economy driven by the convergence of comput computing ing and teleco telecomm mmuni unicat cation ions, s, o ! ers ers growth growth opport opportuni unitie tiess for newly newly indust industria rialis lised ed



This paper is a revised version of a presentation made at the Twelfth Biennial Conference, Conference, organized by International Telecommunications Society, Stockholm, Sweden, June 21 }24, 1998. *Tel: 886-3-4638800 ext. 648; Fax: 886-3-4638277; email: [email protected]. ICT: Information & Communication Technologies, includes computing and communications. 0308-5961/99 0308-5961/99/$ /$ - see front matter 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

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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 informationintensive 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 indigenous 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 telecommunications 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 di4 usion 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 

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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 infrastructures, 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 technologies 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 capabilities can provide a useful indication for technology di ! usion. Three elements emerging from comparative analysis among countries are } investment in human resources, policy decentralisation 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 relationships 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 

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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 associated 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 telecommunications infrastructure on economic growth. 6.1. Strategy priorities of IT-led de velopment 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.

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Table 1 Variables for data analysis Year

Education S&T human resources

R&D

Basic telecom

Advanced telecom

IT Spending (in 1000 NT dollars)



1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

1.92 1.98 2.04 1.64 1.69 1.75 1.78 1.84 1.96 2.11 2.27 2.42 2.60 2.75 2.87 2.98

0.70 0.93 0.89 0.91 0.95 1.01 0.98 1.12 1.22 1.38 1.65 1.70 1.78 1.76 1.80 1.81

13.00 15.49 17.44 19.25 20.70 21.89 23.27 24.89 26.72 28.89 30.88 33.26 35.66 37.87 40.15 42.96

1.55 1.51 1.68 1.80 1.75 1.78 1.72 1.59 1.64 1.75 1.90 1.94 2.04 2.15 2.17 2.16

$9,285.28 8,743.50 7,237.46 7,177.97 14,348.07 15,762.45 12,157.54 12,552.72 10,351.55 13,805.20 15,348.49 17,284.33 20,051.92 19,923.25 19,352.38 19,915.31

$84,518 98,716 103,841 112,928 124,151 129,274 151,148 168,832 182,511 201,402 218,092 240,909 263,420 286,385 306,846 329,522

9.08 9.33 9.33 10.43 10.86 11.33 11.72 12.34 12.90 13.67 14.61 16.00 17.14 18.13 19.01 19.56

GNP per capita (in NT dollars)



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

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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

18543.26 !35034.67 2753.56 !1.22

0.83 !0.10 0.32 !0.07

7.15 !3.07 3.04 !2.44

17579.85 !41165.66 3220.06

0.75 !0.11 0.35

4.95 !2.54 2.50

5342.72 14121.00 !46595.61

0.54 0.55 !0.11

3.80 4.01 !2.85

6350.19 13145.35 !45168.31

0.61 0.47 !0.09

3.59 4.01 !2.84

Variables in the stepwise regression (in the entered order) Current year model S&T human resources Enhanced telecom Basic telecom IT investment R"0.9977, F"1664.30 Durbin }Watson"2.78 One-year lagged model S&T human resources Enhanced telecom Basic telecom R"0.9951, F"948.23 Durbin }Watson"2.09 Two-year lagged model Basic telecom S&T human resources Enhanced telecom R"0.9947, F"824.23 Durbin }Watson"1.82 Three-year lagged model Basic telecom S&T human resources Enhanced telecom 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.

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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 infrastructure (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 Communications 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 building/full-service cable network by 2005

National Computer Board

2.65

Taiwan, ROC

August 1994

NII 2005 } broadband infrastructure

NII Steering Committee

10

South Korea

1994

Korean Information Infrastructure (KII) } broadband infrastructure installed by 2010

Ministry of Information and Communications

57.9

Japan

May 1994

National broadband infrastructure by 2010

Telecommunications Council of the Ministry of Posts and Telecommunications (MPT)

330}550

Thailand

1995, IT year

IT 2000 } broadband access by 2002

National IT Committee

18

Malaysia

February 1991

Malaysian information Ministry of Technology superhighway } "ber to the home by 2020

30

China

1992, 1995

China NII } broadband net delivering over a million telephone channels by 2020

200

MPT, Ministry of Electronic Industries, etc.

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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 robust 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 (newly drafted)

To ensure the secure transactions for the growing Electronic Commerce

The draft was completed in August 1998.

Freedom of  Government Information Law (newly drafted)

Release of suitable government information to the public

The Ministry of Justice completed the draft at the end of 1997 which is currently under review by the Executive Yuan.

Criminal Law

To deal with crimes happening on the Internet such as unauthorised access into a computer system

Amendments were passed by the Legislature in August 1997.

Telecommunications Act

To increase the foreign investment ratio for Type 1 services up to 60% and to further liberalise the telecommunications sector

The draft is currently under review by the Executive Yuan.

The Cable Television Law

To allow the cross-ownership of cable TV operators and telcos

The amendments were passed by the Legislature in January 1999.

Trademark Act

To clarify lawful use of a trademark on the Internet

The draft is planned to be processed to the Executive Yuan at the end of 1998.

Banking Act

To ensure the security of the use of  electronic wallet (electronic cash)

The draft is currently under review by the Executive Yuan.

Copyright Act

To deal with the issues relating to reproduction and use of content on the Internet

The amended draft will be completed by March or April 1999.

Arbitration Act

To allow contracts to be arbitrated over the Internet

The draft is currently under review by the Legislature.

Computer-processed Personal Data Protection Act

To regulate the use of personal data collected over the Internet

The amended draft was completed in April 1998.

Income Tax Law Business Law

To allow the public to "le the income tax return over the Internet

An experimental project was implemented in April 1998. The revisions will be completed by the year of 2000

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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 EastAsian 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 telecommunications when implementing national information infrastructure as a strategy toward advanced development in the long haul. References Aizu, I. (1998). The impact of economic crisis on IT and Internet industry in Asia or can IUT and Internet help recover from the damage. Paper presented at the 12th Biennial conference, organized by international telecommunications society, Stockholm, Sweden, June 21 }24. Cronin, F. J. et al. (1993). Telecommunications infrastructure investment and economic development. ¹elecommunications Policy, 415}430. Nelson, R. R. (1993). National innovation systems : A comparative analysis. New York: Oxford University Press. North, D. C. (1990). Institutions, institutional change and economic performance . Cambridge: Cambridge University Press. OECD. (1992). Information networks and new technologies : Opportunities and policy implications for the 1900s. Paris: OECD. Ohmae, K. (1991). ¹he Borderless =orld. McKinsey and Company, Inc. OECD (1994). Industrial Policy in OECD Countries : Annual Review. Paris.: OECD Simon, D. F. (1993). Strategic underpinnings of the electronics industry in the newly industrialized economies of Asian. In B. Wellenius, A. Miller & C. J. Dahlman (Eds.), Developing the Electronics Industry . Washington, D.C.: the World Bank, 1993, pp. 163}180. Wang, E. H. (1997). ¹he