An Analysis of Industrial Characteristics and Incentives on Foreign Investment: The Case of Rapid Economic Growth in Taiwan

This study measured the impacts of the industrial characteristics and the fiscal incentives that influenced foreign direct investment. We used the fixed effect model with a 2SLS simultaneous equation for the period of rapid economic growth from 1980 to 1996 across nine industries is Taiwan. We found that the wage and market size are positively correlated with foreign national investors, while exports are negatively correlated with overseas Chinese investors. The results also indicated that the tax holiday and the statute for the promotion of upgrading industries affect foreign national investors positively, but that R&D tax credits are ineffective. The relatively high effective tax rates may not deter investments by foreign national investors, thus providing more profitability to a region of economic growth, such as Taiwan. In addition, the profitability of overseas Chinese investors is supported by asset efficiency.