Agenda, Volume 6, Number 1, 1999, pages 69-82 Explaining Taiwan’s Economic Miracle: Are the Revisionists Right? Pan-Long Tsai In Taiwan between 1958 and 1963 when these policy revisions were being made, there was no idea that the economy was moving into an entirely new, externally oriented growth phase, and only with hindsight has the signifi- cance become obvious ... The policy switches were based on limited thinking about the immediate problems of unemployment and foreign ex- change shortages. (Fei, 1995:47) T ■ TAIWAN’S economic achievements over the past half-century have been re- markable (Table 1). The economy has been increasingly opened after the export drive of the 1960s and 1970s. Moreover, growth has not been achieved at die price of increasing inequality. The ratio of the incomes of the top 20 per cent of households to diose of the lowest 20 per cent, estimated to be 20.47 in 1953 and 11.56 in 1961, has decreased to 5.33 in 1964 and never exceeded 6 since then, though it increased slighdy in the 1990s (Chan & Clark, 1992; Li, 1995). 1aiwan’s transition from poverty to prosperity has been accompanied by pro- found structural changes (Table 2). Not only did the industrial content of exports accelerate from 15 per cent in the 1950s to 96 per cent in the 1990s, but skill- and capital-intensive commodities have gained prominence among Taiwan’s exports. Taiwan’s economic success is also confirmed by the resilience it has demon- strated in the recent Asian crisis (Table 3). The Taiwanese economy performed well in the first half of 1998. With some US$84 billion of foreign reserves, rela- tively healthy banking regulation and an extremely light foreign-debt burden, it still augurs well for Taiwan to withstand the financial storm. Taiwan was a basket case, militanly, politically, and economically, on the eve of the Korean War. While it was struggling to recover from the damage of World War II, it had to take in a sudden influx of 1.6-2m refugees from the Chinese mainland, which increased its total population by over 25 per cent. The economy was further strained by one of the heaviest defence burdens in the world, reaching 9.5 per cent of GNP and 47 per cent of the government budget in 1961 (Chan & Clark, 1992). Nevertheless, Taiwan managed to transform itself into a newly indus- trialising economy. Pan-Long Tsai is Professor of Economics at National Tsing Hua University, Hsinchu, Taiwan.