Direct Foreign Investment and Linkage Effects: The Experience of Taiwan

Abstract
The benefits of direct foreign investments are best realized if they flow into industries with high potential linkages and thus do not form foreign enclaves. This paper investigates the linkage effects of foreign investments in Taiwan to determine whether they have become integrated into the local economy. It concludes that such investments have indeed been directed to industries with the highest potential backward linkages, thus contributing to Taiwan's rapid rate of economic growth.

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