Export intermediation and the structure of industry in Korea and Taiwan

This paper theorizes that the expansion in the number, rather than size, of footwear firms in Taiwan is due to a parallel expansion in the number of footwear exporters. A general equilibrium model of this parallel expansion is sketched, accompanied by an analysis of the impact of initial conditions in Taiwan and Korea on the development of the footwear industry in each country. Korea, which was relatively more backward than Taiwan, provided incentives to large footwear firms to expand, while Taiwan did not. The study concludes that Korean-type incentives to individual firms carry with them the risk of fueling a political-economic process characterized by a high degree of rent-seeking and accompanying socially unproductive policies. By contrast, incentives to exporters emerges as a means of acclerating industrial expansion without the risk of rent-seeking. (Author abstract, modified)