Outward foreign investment and export structure: a case study of Taiwan's FDI in Malaysia

As Taiwan's outward FDI was primarily motivated by the relatively lower costs of land and labour in the host countries, one tends to expect that the structure of production and exports in Taiwan would shift toward higher capital and skill intensity. The structure of Taiwan's exports to the ASEAN-4 was concentrated more in higher human and physical capital intensities than Taiwan's total exports to the world. Moreover, Taiwan's exports to the ASEAN-4 were more concentrated on intermediate goods and machinery. A case study of Taiwan's outward FDI in Malaysia indicated that three of the five leading industries that accounted for a large shares of changes on FDI stocks and corresponding export commodities were the same. Pooling estimates also show that FDI has a small but positive impact on Taiwan's exports to the host country. The study further showed that Taiwan's FDI in Malaysia includes mixed tactics of ‘defensive’ and ‘aggressive’ strategies in various industries. In terms of the influence of the presence and economic role of ethnic Chinese on Taiwan's outward FDI, the study showed that the ‘Chinese connection’ has not been a significant factor in determining the industrial distribution of Taiwan's FDI in Malaysia.