Recent political events have begun to focus research on the transformation of socialist economies. Within socialist countries foreign direct investment is viewed as a vital component in economic development. Yet, there is little understanding of the institutional basis which shapes the processes of foreign investment in a transforming command economic system. Of concern is how different types of foreign investment interact with different segments of the decentralizing economic system in socialist countries. The phenomenon of Taiwanese investment in China since the mid-1980s provides an opportunity to empirically answer both sets of questions. This project will examine the process of manufacturing decentralization from Taiwan to localities in Guandong and Fujian Provinces of China, and it will assess the impacts of this activity on employment, industrial structure, levels of technology, living standards, and the generation of industrial linkages in both the capital export region in Taiwan and the capital import localities in China. It will test the hypothesis that under specified conditions foreign investors will establish a dynamic production linkage with the local production system and generate favorable regional impacts. Data will come from published statistics and personal interviews with key actors. The research will develop a typology of firms, localities, investment linkages, and production linkages between the import and export regions. This research addresses the basic issue of what local and regional consequences ensue from manufacturing capital outflows from newly industrializing economies to other developing areas. Does this phenomenon present an opportunity to promote economic cooperation or more intense competition. The case of Taiwanese investment in China is important because of the strong ethnic and social links between these two nations that are not present in other direct investment relations between capital exporting and capital importing economies.
