CHAPTER 4 : THE IMPACT OF DIPLOMATIC TIES ON ECONOMIC DEVELOPMENT: TAIWAN AND CHINA IN LATIN AMERICA AND THE CARIBBEAN
Yen-Pin Su (National Chengchi University)
Abstract
Since 1971, Taiwan and China have competed strongly for diplomatic recognition in Latin America and the Caribbean. Perceived economic benefits have been a primary concern for countries as they decide which side to choose. This chapter focuses on two research questions about the economic impact of Taiwan-China diplomatic competition. First, have countries that switched ties indeed become better off? Second, given that the Belt and Road Initiative (BRI) has offered economic incentives to small states since its launch in 2013, do Taiwan-aligned countries that performed worse after that date tend to switch recognition to China to try to make up their losses? Using quantitative and qualitative methods, the findings demonstrate that changing relations from Taipei to Beijing does not necessarily lead to faster economic growth. Moreover, we find that Taiwan-aligned countries, even those with slower economic growth after 2013, are not necessarily motivated to sever ties with Taiwan. The policy implications of this chapter suggest that the Taiwanese government should strengthen economic links with its diplomatic partners by encouraging the involvement of its state-owned companies and working with US government agencies.
Taiwan’s diplomacy is largely shaped by its contest with China for international recognition (Hsiang, 2021). In 1969, Taiwan had formal relations with 70 countries, the most in its history, while China was recognized by 47. From 1970 to 2021, Taiwan established diplomatic ties with 32 countries, but 80 countries broke away and turned to China.
In the past two decades, China has used ever more instruments of economic statecraft to pursue its strategic goals (Alves, 2013; Teng, 2021, pp. 74-75). Recent studies suggest that countriesthat have abandoned Taiwan were attracted byChinese promisesrelated to the Belt-and-Road Initiative (BRI) (Shattuck 2020), which was adopted in 2013. Anticipated economic gains from China are a crucial motivation for a small state to open diplomatic relations. As one interviewee for this study indicates, “building ties with China is the default mode for Latin American countries because these countries expect that they can get much more aid and investment from China than from Taiwan” (Interviewee A1, October 30, 2021).
This chapter focuses on two research questions about the economic impact of TaiwanChina diplomatic competition. First, did countries that switched ties indeedbecome better off? Second, given that the BRI offers the prospect of more economic interaction with China, do Taiwan-aligned countries that were economically worse off after 2013 tend to switch relations to China?
To address these questions, this chapter examines Taiwan-aligned countries in the LAC region, where most of Taiwan’s remaining diplomatic partners are located (8 out of 14). In the next section, I provide discussion on my testable hypotheses with the help of the difference-in-differences (DID) analysis. Third, I present five case studies in the LAC region to analyze the economic impact of Taiwanese and Chinese involvement. Lastly, I assess the findings and reach a conclusion.
Introduction
