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Economic Challenges of Taiwan and Hong Kong in 1980s

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Executive Summary

The liberalization of world economy in 1980s has become part of the success of most economies, especially in the developed nations. The environment of the 1980s in Taiwan and Hong Kong was characterized by dramatic change, leading to both success of the two economies and substantial economic challenges. This paper outlines some of the economic challenges faced by Hong Kong and Taiwan in 1980s. Research has shown that some of the pertinent economic issues and problems that were common in Honk Kong and Taiwan are: labour issues, inadequate land, trade with China and high inflation rates.

Like other developed countries, Taiwan and Hong Kong face several economic problems. First, labour in the two islands, especially in Taiwan is expensive. As a result, labour intensive industries have relocated to countries with cheap labour (Mai, 2001). Low-cost labour enables such industries to minimize costs as they seek large profits. Therefore, they are forced to seek cheap labour in other countries such as China. As industries relocate to other economies where there is cheap labour, the productivity as well as economic growth of Taiwan and Hong Kong reduced. This problem of labour was overcome through transformation of the economy into a high technology and service-oriented economy which does not require a lot of labour.

The second challenge was high inflation rates. In 1980, the inflation rates of Taiwan rose to 16% due to the increase in prices of oil. Towards the end of the decade, inflation rates rose globally due to inflationary pressures on prices of commodities due to increased oil prices. Hong Kong was also affected. The problem was resolved through monetary policies that could suppress the circulation of money in the economy.

Another economic challenge which faced Taiwan and Hong Kong in 1980s was inadequate land. The Islands of...