Taiwan's international investments and financial intermediaries: Optimal strategies for a graduating, developing economy

Rapid economic growth and export expansion have led to a major trading role for Taiwan in the global economy. In most recent years, this growth has been characterized by large current account surpluses and high levels of domestic savings. However, the banking system is not yet sufficiently developed; both domestic and foreign investments have lagged behind. These indicate the dimensions of the need for structural reform and economic transformation, of which a key aspect is the growth of Taiwan's international banking and financial capability. This is the focus of this dissertation.;The strategy for Taiwan must begin with the establishment of a basic international network of banking. This must include at least two branches. Additional branches should be established in those locations possessing the most competitive advantages. Initially, the branch is the best organizational form. Thereafter, subsidiaries become desirable since they allow a greater degree of flexibility. Representative offices enable a bank to gain experience in a new area. Given the potential for both internal and external political crisis, international portfolio investment will grow in importance as Taiwanese investors aim at minimizing risks by investing overseas.;Historically, the financial system in Taiwan has been overly regulated and domestic-oriented, but this has begun to change. Although the government has lifted many restrictions, it must still vigorously pursue policies aimed at developing international investment and banking capacity. This will be in line with long-term development objectives for Taiwan.;A well developed banking mechanism with an international capacity is the objective of the government of Taiwan, since it will be needed whether or not current account surpluses continue. An optimal strategy for developing international investment and banking is derived through examining the theories of competitive advantage, locational choice, organizational form choice and international portfolio investment. Because the experience of Japan in the 1970s bears so many similarities to the current situation of Taiwan, it is explored in detail.