Industrial policy, Structural Change, and Pattern of Industrial Productivity Growth in Taiwan

1

  

Tsu-tan FuDepartment of Economics & Center for Efficiency and Productivity Research,

Soochow University

Hsing-chun LinDepartment of Applied Economics, National Chiayi University

Yih-ming LinDepartment of Applied Economics, National Chiayi University

Wei-sing KongTaiwan Research Institute

To be presented at the third World KLEMS Conference, Tokyo, Japan on May 19, 2014.

1. Introduction

The purpose of this paper is to investigate the relationship among industrial policy, structural change and TFP growth pattern at industry level in 1981-2010.

We review the main Taiwan industrial development policy We construct the Taiwan KLEMS Database, in which the

economy is divided into 31 industries based on the Asia KLEMS manual.

Investigate the structural change among industries. We decompose the output growth into contributions of

capital, labor and intermediate inputs as well as total factor productivity.

We further conduct cross-period and cross-industry comparisons on the structures of industry output growth and of the factor contribution in Taiwan.

2

The Main Taiwan Industrial Development Strategies

3

Figure 1: An overview of Taiwan’s Industrial Development

2000's Knowledge-Intensive Manufacturing and Service Industry

ICT Growth slow down 3.76%

1980-1990's High-Tech IndustryICT Rapid Growth 7.37%

1970's Heavy and Chemical IndustryExport Expansion 9.27%

1960's Light industryImport Substition Average GDP Growth rate 10.2%

Challenges during 1981-2010

Oil crisis the appearance of a powerful

opposition partythe appreciation of the New

Taiwan dollars (NT$)Labor and land cost increaseinflation and asset bubbles (stock

market and housing price)

4

The Main Taiwan Industrial Development StrategiesEconomic liberalization and

InternationalizationITRI and the technical support of

the NSTPThe Establishment of the HSIPTax incentives under the Statute

of Upgrading IndustriesPromotion of the Semiconductor

industry

5

3.1 Growth Accounts

 

6

3.1 Growth Accounts

 

7

3.1 Growth Accounts

 

8

3.1 Growth Accounts

 

9

3.2 Taiwan KLEMS Database

Outputs (GO, VA):Based on DGBAS data

Directorate General of Budget, Accounting and Statistics, Taiwan (DGBAS)

http://www.dgbas.gov.tw

Time period: 1981-2010

93SNA (asset classification)

31 sectors (the 32th sector, the “EXTRA-TERRITORIAL ORGANIZATIONS AND BODIES” in Asia KLEMS manual, is not available)

GO = II+ VA (Gross output = intermediate inputs + value added)

Using National Income Survey data

Convert 63 sectors into 31 sectors10

3.2 Taiwan KLEMS Database

Capital input (K):

Capital = real net capital stock (DGBAS)

Capital stock- adopt the Benchmark extrapolation method

Benchmark year: -those when each Industrial and Commercial Census took place and national wealth census (only once)

Convert capital data from DGBAS (16 sectors available after 2001 and 11 sectors available before 2001) into the capital data in format of 31 sectors

Base year: 2005

11

3.2 Taiwan KLEMS Database

Labor input (L):Man Hours: including man hours of employees, employers, own-

account workers, and unpaid family workers

Data sources:

1. Man hours - from Manpower survey

2. Adjusted working hours– Employees’ Earnings Survey

3. The source of average wages –The Manpower Utilization Survey

12

3.2 Taiwan KLEMS Database

Labor input (L):Total Labor compensation = Average Labor compensation

(wage)* total equi-employed persons (Taiwan wage and productivity report)

Total working hours

13

3.2 Taiwan KLEMS Database

Data from Intermediate Input of national income

Divide all sectors into three sectors, energy (E), Materials(M), Services(S)

Using Input-output table to get the inputs of E, M, S for each industry

14

3.2 Taiwan KLEMS Database

K, L, E, M, S Shares:

K, L, E, M, S are known

Nominal value shares for L, E, M, S, and K:

1. SL = L/Gross output

2. SE = E/Gross output

3. SM = M/Gross output

4. SS = S/Gross output

5. Capital share SK= 1 – SL – SE – SM - SS

15

3.2 Taiwan KLEMS Database

Total Factor Productivity (TFP):

TFP growth (dlnTFP) is defined as:

◦ (1) for Growth Output (GO)

dlnTFP_GO =

dln(GO) – SL*dlnL - SK*dlnK - SE* dlnE – SM*dlnM – SS*dlnS

16

Table1: The industry Value Added weights by sector

unit:%

Sector 1981-1990 1991-2000 2001-2010 1981-2010

Primary 6.13 3.10 1.73 3.66

Secondary 44.75 34.70 30.99 36.82

Manufacturing 35.55 27.03 26.29 29.62

Tertiary 49.11 62.19 67.27 59.53

Primary and Secondary sectors decreased over time. Tertiary sector increased up to 67%. Secondary to 31%.

Figure 1: Industrial structure of Taiwan: 1981-2010

1987 is the year of industrial structure turning in Taiwan.

Table 2-1: Industry Value Added Weights by selected year (Primary & Secondary)

unit:%Sector Industry number 1981 1990 2000 2010

Secondary1.Agriculture, hunting and forestry 7.65 4.24 2.08 1.69 2.Mining and quarrying 2.16 0.68 0.52 0.48 3.Food products, beverages and tobacco 4.48 3.33 1.47 1.24 4.Textiles, textile products, leather and footwear 6.96 4.47 1.88 0.82 5.Wood and products of wood and cork 0.65 0.41 0.08 0.07 6.Pulp, paper, paper products, printing and publishing 1.57 1.29 0.73 0.63 7.Coke, refined petroleum products and nuclear fuel 1.30 1.14 1.38 1.09 8.Chemicals and chemical products 2.50 2.82 2.25 3.23 9.Rubber and plastics products 1.42 2.10 1.26 0.70 10.Other non-metallic mineral products 1.69 1.43 0.70 0.47 11.Basic metals and fabricated metal products 2.94 3.99 3.55 3.30 12.Machinery, nec 0.98 1.28 1.18 1.27 13.Electrical and optical equipment 4.31 5.46 8.37 12.08 14.Transport equipment 2.39 2.42 1.56 1.26 15.Manufacturing nec; Recycling 2.80 2.01 1.04 0.65 16.Electricity, gas and water supply 3.40 2.81 2.06 1.35 17.Construction 5.69 4.61 3.22 2.90

Most manufacturing industries decreased over time. Industry #8, 11, 13, 17 remain important.

Table 2-2: Industry Value Added Weights by selected year (Tertiary)

unit:%Sector Industry number 1981 1990 2000 2010Tertiary 18.Sale, maintenance and repair of motor vehicles 1.16 1.44 1.33 1.23

19.Wholesale trade and commission trade 6.17 6.23 9.41 10.94 20.Retail trade, except of motor vehicles and motorcycles 5.78 5.76 6.97 6.67 21.Hotel and restaurants 0.90 1.67 2.09 2.05 22.Transport and storage 4.27 4.40 3.93 3.02 23.Post and telecommunications 1.62 1.72 2.50 1.95 24.Financial intermediation 4.22 7.77 8.58 6.51 25.Real estate activities 5.09 6.42 8.88 8.86 26.Renting of m&eq and other business activities 1.70 2.02 3.39 4.88 27.Public admin and defence; Compulsory social security 9.01 9.29 8.16 7.48 28.Education 2.74 3.06 4.22 4.74 29.Health and social work 0.75 1.60 2.63 3.09 30.Other community, social and personal services 3.22 3.51 3.87 4.55 31.Private households with employed persons 0.47 0.61 0.71 0.80

Most service industries increased over time. Industry #19, 20, 24, 25, 27 are more important.

Figure 3a: Growth of Industry Output 1982-2010

Growth rate varies by industry; Most are positive. Only 3 industries among top 10 are Secondary industries. Other top 7 are Tertiary industries.

Inputs : 1982-2010

Capital, Labor, Intermediate Inputs (Energy, Materials, Services)

22

Figure 3b: Growth of Industry Labor Input (HEMP, working hour)1982-2010

There are about 10 industries among primary and secondary industries which labor input growth rate are negative or close to 0.

Figure 3c: Growth of Industry Capital Stock Input 1982-2010

The growth rate of Capital input is relative higher than labor input.

Figure 3d: Growth of Industry Energy Input 1982-2010

Figure 3d: Growth of Industry Material Input 1982-2010

Figure 3e: Growth of Industry Service Input 1982-2010

TFP at Industry Level

28

Table 4a: Growth of TFP by Period (Primary & Secondary)

unit:%

Industry number 1982-2010 1982-1990 1991-2000 2001-2010

Primary 1.Agriculture, hunting and forestry 0.75 1.13 0.80 0.35Secondary 2.Mining and quarrying 1.96 1.77 0.06 4.03

3.Food products, beverages and tobacco -0.91 -0.46 -0.76 -1.484.Textiles, textile products, leather and footwear -0.32 0.03 -0.29 -0.665.Wood and products of wood and cork 0.46 0.85 0.78 -0.336.Pulp, paper, paper products, printing and publishing -0.04 -0.97 0.37 0.387.Coke, refined petroleum products and nuclear fuel 0.75 0.72 1.39 0.148.Chemicals and chemical products 0.56 0.76 0.70 0.259.Rubber and plastics products 0.66 2.00 0.44 -0.3210.Other non-metallic mineral products 0.60 1.10 0.77 -0.0311.Basic metals and fabricated metal products 0.74 1.05 1.43 -0.2212.Machinery, nec 0.73 0.97 0.70 0.5513.Electrical and optical equipment 1.39 0.60 1.28 2.2014.Transport equipment 0.04 0.22 0.00 -0.0915.Manufacturing nec; Recycling 0.09 -0.16 1.19 -0.7816.Electricity, gas and water supply 1.25 1.95 1.49 0.3917.Construction 0.06 0.62 -0.22 -0.16

13.Electrical and optical equipment is the highest TFP growth rate among manufacturing

Industry number 1982-2010 1982-1990 1991-2000 2001-2010

Tertiary 18.Sale, maintenance and repair of motor vehicles 1.77 2.02 1.99 1.3219.Wholesale trade and commission trade 2.46 2.83 2.26 2.3420.Retail trade, except of motor vehicles and motorcycles 2.92 4.53 3.69 0.6921.Hotel and restaurants 2.06 4.51 1.82 0.0922.Transport and storage 1.15 1.57 1.45 0.4723.Post and telecommunications 5.69 6.08 8.72 2.3124.Financial intermediation 1.06 3.94 -0.35 -0.1325.Real estate activities -7.64 -2.00 -18.81 -1.5526.Renting of m&eq and other business activities 0.80 1.83 0.26 0.4027.Public admin and defence; Compulsory social security 0.87 1.24 1.71 -0.3128.Education 1.50 0.36 2.13 1.4229.Health and social work 1.34 3.49 1.34 -0.5930.Other community, social and personal services 0.16 -1.56 0.18 1.6831.Private households with employed persons 2.52 8.51 -1.44 1.09

unit:%Table 4b: Growth of Industry TFP by Period (Tertiary)

23.Post and telecommunications is the highest among tertiary industries.

Figure 5: Growth of Industry TFP 1982-2010

Sources of Output Growthat Industry Level 31 Industries1982 – 2010

32

Table 6a: Sources of Industry Output Growth (in growth rate):

1982-2010 (Primary & Secondary)

Industry number GO ConK ConL ConE ConM ConS ConII TFP

Primary 1.Agriculture, hunting and forestry 0.80 0.44 -0.95 0.01 0.21 0.33 0.55 0.75Secondary 2.Mining and quarrying 0.05 -2.50 -0.63 0.07 0.87 0.28 1.22 1.96

3.Food products, beverages and tobacco 1.77 1.38 -0.09 0.04 0.81 0.55 1.39 -0.91

4.Textiles, textile products, leather and footwear -0.62 0.35 -0.72 -0.01 -0.12 0.20 0.07 -0.32

5.Wood and products of wood and cork -2.97 0.04 -1.24 -0.16 -1.66 -0.57 -2.38 0.46

6.Pulp, paper, paper products, printing and publishing 2.96 0.69 0.13 0.13 1.13 0.92 2.18 -0.04

7.Coke, refined petroleum products and nuclear fuel 3.91 0.85 -0.01 1.07 0.69 0.56 2.32 0.75

8.Chemicals and chemical products 7.30 1.13 0.05 0.28 4.39 0.88 5.55 0.56

9.Rubber and plastics products 4.38 0.45 -0.01 0.11 2.44 0.71 3.27 0.66

10.Other non-metallic mineral products 2.97 0.90 -0.27 0.01 1.02 0.72 1.75 0.60

11.Basic metals and fabricated metal products 5.91 0.44 0.28 0.12 3.38 0.94 4.44 0.74

12.Machinery, nec 7.67 0.41 0.38 0.07 4.28 1.77 6.12 0.73

13.Electrical and optical equipment 11.92 1.50 0.33 0.22 5.83 2.64 8.70 1.39

14.Transport equipment 4.79 0.88 0.04 0.05 2.77 1.01 3.83 0.04

15.Manufacturing nec; Recycling 1.67 0.96 -0.45 0.00 0.53 0.54 1.08 0.09

16.Electricity, gas and water supply 5.41 1.89 -0.02 1.06 0.72 0.51 2.28 1.25

17.Construction 3.25 0.59 0.06 0.00 1.79 0.75 2.54 0.06

Table 6b: Sources of Industry Output Growth (in % share):

1982-2010 (Primary & Secondary)unit:%

Industry number GO ConK ConL ConE ConM ConS ConII TFP

Primary1.Agriculture, hunting and forestry 100 55.57

-118.2

01.44 26.53 41.08 69.05 93.58

Secondary2.Mining and quarrying 100

-4635.

76

-1157.

9

128.42

1612.2

522.44

2263.0

3630.6

3.Food products, beverages and tobacco 100 77.92 -5.04 2.10 45.73 31.05 78.88 -51.76

4.Textiles, textile products, leather and footwear 100 -56.98116.3

71.57 19.03 -31.88 -11.28 51.89

5.Wood and products of wood and cork 100 -1.38 41.86 5.34 55.74 19.02 80.11 -15.63

6.Pulp, paper, paper products, printing and publishing 100 23.45 4.42 4.39 38.18 31.08 73.64 -1.50

7.Coke, refined petroleum products and nuclear fuel 100 21.76 -0.28 27.33 17.65 14.34 59.31 19.21

8.Chemicals and chemical products 100 15.45 0.75 3.87 60.20 12.05 76.12 7.67

9.Rubber and plastics products 100 10.35 -0.23 2.54 55.85 16.33 74.72 15.16

10.Other non-metallic mineral products 100 30.14 -9.10 0.27 34.27 24.23 58.77 20.19

11.Basic metals and fabricated metal products 100 7.43 4.81 2.04 57.28 15.91 75.23 12.54

12.Machinery, nec 100 5.37 4.99 0.96 55.85 23.08 79.89 9.56

13.Electrical and optical equipment 100 12.55 2.80 1.86 48.94 22.18 72.98 11.66

14.Transport equipment 100 18.40 0.84 1.08 57.86 21.06 80.00 0.76

15.Manufacturing nec; Recycling 100 57.23 -26.90 0.08 31.91 32.31 64.30 5.37

16.Electricity, gas and water supply 100 34.90 -0.30 19.59 13.27 9.36 42.23 23.17

17.Construction 100 18.09 1.78 0.12 55.05 23.08 78.25 1.88

Table 6c: Sources of Industry Output Growth (in growth rate):

1982-2010 (Tertiary) Industry number GO ConK ConL ConE ConM ConS ConII TFP

Tertiary 18.Sale, maintenance and repair of motor vehicles 5.78 0.77 0.75 0.10 1.15 1.24 2.48 1.77

19.Wholesale trade and commission trade 7.00 1.14 1.18 0.06 0.30 1.85 2.21 2.46

20.Retail trade, except of motor vehicles and motorcycles 5.63 0.70 0.10 0.15 0.31 1.46 1.92 2.92

21.Hotel and restaurants 7.92 1.22 0.75 0.56 1.58 1.76 3.90 2.06

22.Transport and storage 5.32 1.29 0.03 0.03 1.15 1.67 2.85 1.15

23.Post and telecommunications 10.47 1.87 0.36 0.13 0.69 1.73 2.55 5.69

24.Financial intermediation 7.87 3.65 1.09 0.02 0.18 1.88 2.08 1.06

25.Real estate activities 6.29 12.37 0.19 0.01 0.60 0.76 1.37 -7.64

26.Renting of m&eq and other business activities 8.38 1.85 1.98 0.07 1.33 2.35 3.75 0.80

27.Public admin and defence; Compulsory social security 3.31 0.65 0.72 0.01 0.25 0.81 1.07 0.87

28.Education 6.44 0.46 2.39 0.16 0.54 0.60 1.29 1.50

29.Health and social work 8.65 1.79 1.87 0.21 1.79 1.65 3.64 1.34

30.Other community, social and personal services 6.56 3.13 0.22 0.14 0.85 2.05 3.05 0.16

31.Private households with employed persons 6.16 3.22 0.42 0.00 0.00 0.00 0.00 2.52

Table 6d: Sources of Industry Output Growth (in % share):

1982-2010 (Tertiary) Industry number GO ConK ConL ConE ConM ConS ConII TFP

Tertiary 18.Sale, maintenance and repair of motor vehicles100.0

013.39 13.03 1.73 19.83 21.41 42.98 30.60

19.Wholesale trade and commission trade100.0

016.33 16.81 0.85 4.35 26.45 31.64 35.22

20.Retail trade, except of motor vehicles and motorcycles100.0

012.46 1.75 2.67 5.45 25.90 34.02 51.77

21.Hotel and restaurants100.0

015.34 9.51 7.01 19.91 22.27 49.19 25.96

22.Transport and storage100.0

024.24 0.55 0.50 21.63 31.46 53.58 21.63

23.Post and telecommunications100.0

017.89 3.46 1.24 6.60 16.51 24.34 54.31

24.Financial intermediation100.0

046.33 13.84 0.20 2.25 23.94 26.39 13.44

25.Real estate activities100.0

0196.6

63.02 0.18 9.55 12.02 21.76

-121.4

4

26.Renting of m&eq and other business activities100.0

022.08 23.66 0.80 15.87 28.08 44.75 9.50

27.Public admin and defence; Compulsory social security100.0

019.66 21.75 0.42 7.54 24.41 32.37 26.22

28.Education100.0

07.10 37.09 2.46 8.32 9.26 20.04 23.21

29.Health and social work100.0

020.73 21.64 2.43 20.66 19.04 42.13 15.50

30.Other community, social and personal services100.0

047.79 3.35 2.20 12.93 31.32 46.45 2.41

31.Private households with employed persons100.0

052.23 6.86 0.00 0.00 0.00 0.00 40.92

unit:%

Figure 6: Sources of Industry Output Growth (in growth rate)

1982-2010

Sources of Growth for 3 selected Industries

Period Con K Con L Con E Con M Con S ConⅡ TFP

1982-2010 12.55 2.80 1.86 48.94 22.18 72.98 11.66

1982-1990 11.77 3.46 1.56 63.23 15.31 80.10 4.66

1991-2000 12.00 2.82 1.64 43.33 31.00 75.97 9.20

2001-2010 14.41 1.92 2.59 39.07 17.45 59.11 24.56

Table 7a: Source of GO growth for “13.Electrical and Optical

Equipment ” industry

(with the highest VA weight in the Secondary sector)

unit:%

Period Con K Con L Con E Con M Con S ConⅡ TFP

1982-2010 16.33 16.81 0.85 4.35 26.45 31.64 35.22

1982-1990 18.18 16.34 0.39 6.79 26.89 34.07 31.42

1991-2000 11.75 26.94 0.57 -0.32 32.57 32.81 28.50

2001-2010 21.36 -1.25 2.26 8.43 14.13 24.82 55.06

Table 7b: Source of Go growth for “19.Wholesale trade and

commission trade” industry

( with high % share on II & S )

unit:%

Period Con K Con L Con E Con M Con S ConⅡ TFP

1982-2010 17.89 3.46 1.24 6.60 16.51 24.34 54.31

1982-1990 23.48 3.17 0.07 19.26 32.89 52.22 21.12

1991-2000 18.08 2.18 1.75 7.21 16.62 25.58 54.16

2001-2010 21.98 -5.12 -0.90 -5.88 34.30 27.53 55.61

Table 7c: Source of Go growth in “23.Post and telecommunications” industry

unit:%

Conclusion Remarks

Taiwan’s industrial policy focused on to support the socalled “hi-tech” industries, such as ICT industry (13 Electrical and Optical Equipment, Post and communications).

The strategies include establishment of science-based industrial parks, technological support from national research institute and national plan, providing tax incentives and special support for developing semiconductor industry.

Concluding Remarks

Significant structural changes happened in past decades.

Weights for primary and secondary decrease over time, except for “Electrical and optical equipment” and “Basic and fabricated metal”.

Tertiary industry weight increases. Several industrial, such as food products

and textile, rubber and plastics, the growth rates of labor input (measured by total working hour, HEMP) are negative.

43

TFP growth rate of “Electrical and Optical Equipment” industry is the highest in manufacturing industries.

TFP growth rate of “Post and communications” is the largest among the tertiary sector.

The impact of the industrial policy does not have impact on structural change, but also influences the TFP growth rate.

44

Thank you for your attention!

45