Clustering Evolution of Taiwan IC Industry in China

This paper for the first time quantitatively analyzes the clustering behaviors by using the foreign direct investment (FDI) data of Taiwan IC industries. According to the relationship between the FDI and the industrial clustering phenomenon, we first formulate a dynamic FDI growth model for the estimation of total FDI amount. Consequently, we can tangibly elucidate the clustering behaviour of IC industry from Taiwan to China. Furthermore, the effects of the innovation, imitation and the potential investment factors on the IC industrial clustering are systematically compared among the IC design, IC manufacturing as well as IC packaging and testing industries. The results indicate the significant internal influence of intra-industry communications on Taiwan's FDI evolution into China. This suggests that Taiwan IC firms tend to successively imitate the previously experienced FDI firms to engage in FDI in China. Particularly, the internal impact is the strongest for IC manufacturing firms, revealing its greatest clustering extent. In addition, Taiwan IC industry's FDI amount in China is cumulatively predicted increasing in our model and the finding once again supports the clustering tendency of IC industries. However, the predicted FDI amount for IC manufacturing industry is not as accurate as the other two industries because Taiwan had strictly prohibited IC manufacturing industry from undertaking FDI into China before the third quarter of 2003. The prediction ability of our dynamic growth model for IC manufacturing firms is dramatically improved as the strict restriction period is removed from our sample analysis.

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