ECONOMIC GROWTH CENTER

                       YALE UNIVERSITY

                       P.O. Box 208269
                     27 Hillhouse Avenue
                   New Haven, CT 06520-8269


               CENTER DISCUSSION PAPER NO.  786





                         REFLECTIONS



                         Gustav Ranis

                       Yale University




                        December 1997






Note: Center Discussion Papers are preliminary materials circulated to
      stimulate discussions and critical comments.  This is a revised version
      of the paper originally written in July 1997.

      Financial support was provided by a grant from the Taipei Economic and
      Cultural Office entitled "Taiwan in Asia Pacific and the World
      Economy at the Turn of the Century."

                         Reflections

               Keynote Speech delivered at the
      Conference on the Economics and Political Economy
          of Development at the Turn of the Century

                                                 Gustav Ranis
                                              Yale University


                           ABSTRACT

    This paper examines the causes of Taiwan's exceptional economic
performance, focusing on the influence of organizational and policy choices
and how Taiwan's example differs from those of more typical less-developed
countries.  After briefly citing cultural factors as proposed by his late
colleague John Fei, Ranis proceeds to explore the issues of organic
nationalism, natural resource endowment, access to foreign capital
and other political factors that have produced such economic success.
    The author demonstrates how Taiwan's unique combination of strong organic
nationalism, meager natural resources and limited access to foreign capital
helped curb the Extended Dutch Disease phenomenon endemic in LDCs.  In
addition, the government's non-oscillatory, relatively laissez-faire fiscal and
monetary policies, encouragement of technological innovation, plus generous
educational, R&D and infrastructural expenditures have contributed to low rates
of inflation and high rates of GDP growth.  The paper finally suggests a
positive correlation between democracy and economic development.

Keywords:  Economic Development, LDC, Political Economy, Taiwan, Extended
           Dutch Disease, Democracy

JEL Codes: O10, O11, O50, P16