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Savings and Investment
in Taiwan
A prominent characteristic of Taiwan's economy has been its people's
high propensity to save. Despite this, Graph 8 indicates that as
a ramification of greater spending in recent years, this pattern
is unlikely to continue.
Graph 8
Savings and Investment
in Taiwan
Note: Figures are calculated as a percentage of
GDP. Data for 1992 is an estimate. Source: ADB, Asian Development
Outlook 1991, Tables A7 and A8.
Gross national savings rates have already started to fall from
36.9% in 1988 to 30.5% in 1990, with an expected further decrease
to 30.2% in 1992. In other words, Taiwanese' frugality in the past
is giving way to a more consumer oriented society.
Changing spending habits in Taiwan combined with forecast increases
in domestic investment may eat away at Taiwan's foreign currency
reserves. However, the KMT government may avoid dipping too deeply
into its foreign reserves if it replaces foreign investment with
more imports. With little or no net increase in investment then,
imports could reduce and save foreign currency. Another strategy
the KMT government could follow would be to not spend its foreign
exchange reserves on domestic investment at all, but to finance
it by squeezing consumption. But, no matter how the government finances
it, domestic investment in Taiwan will increase as the government
prepares to plough massive funds into national construction projects
in conjunction with Taiwan's current Six Year Plan.
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