Which Policies are Important for Industrialization?

22 Pages Posted: 7 Dec 2001

See all articles by Glenn P. Jenkins

Glenn P. Jenkins

Queen's University - Department of Economics; Eastern Mediterranean University

Chun Yan Kuo

Queen's University - Department of Economics

Date Written: July 2001

Abstract

In this paper, we develop an integrated cash flow model of investments to examine the relative impact of tax incentives, trade policies, financial subsidies, the growth in real wages and movements in the real exchange rate on the profitability of industrial investments over the past 40 years in Taiwan. The model is developed in such a manner that the movements of all the policy and macroeconomic variables are allowed to interact with each other. The results show that trade and macroeconomic policies have a much more important effect on the profitability of investments in the export sectors than do income tax incentives or subsidized finance programs. The effects of the tax incentives and financial subsidy policies are indeed minor in comparison with impact of the fundamental trends in macroeconomic variables such as the movement of the real exchange rate and the real wage rate.

Keywords: Tax incentives, industrialization, export promotion, real wages, real exchange rate, Taiwan

JEL Classification: H25, F13, O12

Suggested Citation

Jenkins, Glenn P. and Kuo, Chun Yan, Which Policies are Important for Industrialization? (July 2001). Available at SSRN: https://ssrn.com/abstract=292425 or http://dx.doi.org/10.2139/ssrn.292425

Glenn P. Jenkins (Contact Author)

Queen's University - Department of Economics ( email )

99 University Avenue
Kingston K7L 3N6, Ontario
Canada K7L 3N6
613 533 6556 (Phone)
613 533 6818 (Fax)

Eastern Mediterranean University

Gazimagusa, Mersin 10
Turkey

Chun Yan Kuo

Queen's University - Department of Economics ( email )

99 University Avenue
Kingston K7L 3N6, Ontario
Canada K7L 3N6

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