Institutional innovation and investment in Taiwan: the micro-foundations of the developmental state

Abstract

Rapid growth in the East Asian newly industrializing countries depended on institutional innovation. Authoritarian governments like Taiwan faced a dilemma: how to assure investors in a policymaking environment that made commitments difficult to sustain? In contrast to both the early developmental state literature and the new literature on authoritarian institutions, this article shows that “small” institutions have had an effect on both the credibility of commitments and the composition of the firms that the Taiwanese state sought to assure. In the 1950–1960s, insulated decision-making bodies with strong participation by foreigners and export-processing zones signaled government intent to both foreign and domestic firms. In the 1970–1980s, democratic decision-making structures were more decentralized and state interventions shifted in a more market-oriented direction. Even so, the Taiwanese government continued to use institutions such as the Hsinchu Science Park to extend assurances to domestic investors engaged in risky high-technology ventures.