| Summary: | 碩士 === 國立清華大學 === 經濟學系 === 99 === It’s been controversial for Taiwan’s underestimating exchange rates policy to subsidy exports. The main reasons are as follows: As a small highly open economy, Taiwan’s export accounts for a big portion of economic development. It’s crucial to set up an underestimated exchange rates to sustain economic growth. However, besides the high-level foreign exchange we might pay for the move, the transition of Taiwan’s industries and the soaring material prices these years also gave us a prospect that this policy might not work as expected. In this research, we try to connect the domestic investment to Taiwan’s manufacturings via several channels like PCM(Price-over-cost Markup), IEE(Index of Effectsive Exposure) and trade-weighted real exchange rates to see how these factors come into effects.
We found that large IEE, or more tendency of shipping products overseas, will become more profitable when local currency depreciates, leading to a higher investment. Conversely, small IEE or more tendency of using imported inputs will cause loss and lower investment. On the other hand, we compare the effectss in two periods(1998-2003, 2004-2009), and the result points out that there is less wealth effects bur more cost effects as time changes. When it comes to PCM, the one with higher PCM can absorb moren negative impact of exchange rates.
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