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Therecordkeeping and development of theeconomic history ofTaiwan started in theAge of Discovery. In the 17th century, theEuropeans realized thatTaiwan is located on thestrategic cusp between theFar East andSoutheast Asia. Two main Europeanempires that competed to colonize it were theDutch andSpanish Empires. Taiwan also became an intermediate destination fortrade betweenWestern European empires andEast Asia states. Thehistory of Taiwan as acolony of theDutch Empire,Kingdom of Tungning,Qing China, andEmpire of Japan between 1630 and 1945 was based heavily oneconomics.

In the 1950s, the ROC government, retreated to Taiwan after losing theChinese Civil War, carried outland reform policies such as the37.5% Arable Rent Reduction Act.^[1][2] In the 1960s, theagrarian economy was replaced withlight industry assmall and medium enterprises started to form. From 1966 to 1980, Taiwan's economy was gradually stabilized as theTen Major Construction Projects laid a foundation in further economic developments. After the 1980s, the role of government in the economy gradually lessened as manygovernment-owned corporations wereprivatized.

According to archaeological evidences,Taiwan has been inhabited by human since the lateUpper Paleolithic (ca. 50,000 - 10,000 BP). One of the first civilizations developed was the Changpin culture (Chinese:長濱文化) in southern Taiwan. Manyarchaeological sites ofNeolithic civilizations were found in theTaipei basin in northern Taiwan. The economic activities during this period, which cannot be described with detail as there was nowritten language, werefishing,gathering, andfarming.^{[citation needed]}

Analysis ofspores andpollen grains insediment ofSun Moon Lake suggests that traces ofslash-and-burn agriculture started in the area since 11,000 years ago, and ended 4,200 years ago, when abundant remains ofrice cultivation were found in such period.^[3]

In the early Neolithic period,jade was used only for tools such are adzes, axes and spear points.From about 2500 BC, jade ornaments began to be produced, peaking in sophistication between 1500 BC and 1 AD, particularly in the Beinan Culture of southern Taiwan.All the jade found on Taiwan came from a deposit of greennephrite at Fengtian, near modernHualien City.Nephrite from Taiwan began to appear in the northern Philippines between 1850 and 1350 BC, spawning the Philippine jade culture.Around the beginning of the Common Era, artisans in Taiwan switched from jade to metal, glass andcarnelian. However, Philippine craftsmen continued to work jade from Taiwan until around 1000 AD, producinglingling-o pendants and other ornaments, which have been found throughout southeast Asia.^[4][5]

Artifacts of iron and other metals appeared on Taiwan around the beginning of the Common Era.At first these were trade goods, but by around 400 ADwrought iron was being produced locally usingbloomeries, a technology possibly introduced from thePhilippines.Distinct Iron Age cultures have been identified in different parts of the island: theShihsanhang Culture (十三行文化) in the north, the Fanzaiyuan Culture (番仔園) in the northwest, the Daqiuyuan Culture (大邱園) in the hills of southwestNantou County, the Kanding Culture in the central west, theNiaosung Culture in the southwest, the Guishan Culture (龜山) at the southern tip of the island, and theJingpu Culture (靜浦) on the east coast.The earliest trade goods from China found on the island date from theTang dynasty (618–907 AD).^[6][7]

In the early 17th century, theDutch East India Company originally only traded along thePescadores. However, theMing Dynasty claimed thearchipelago to be part of its territory and drove out the Dutch. The Dutch were forced to retreat to the main island ofTaiwan, then known asFormosa. They established atrading post inTayoan (modern-dayTainan City).

The Dutch recognized the significance of cane sugar as an export product and extensively developed the industry in the areas under their control. Dutch exports of sugar rose rapidly throughout their colonial tenure and had reached 1,300 tons by 1660, a tenfold increase from 1636.^[8]

The main purpose of the occupation of Taiwan was to trade withmainland China,Japan,Korea, andSoutheast Asia, attempting tomonopolize on the trade in East Asia. The main Taiwanese resources that they exported weresugar,sika deerskin, deer meat,antlers,rattan, andrice. By 1658, the company exported sugar toPersia,Japan, andJakarta and had about 35 trading posts in Asia. Tayoan gained 25.6% profit, ranked second out of all of the Dutch trading posts, afterNagasaki,Japan. However, the profit was distributed toshareholders of the company, and not the local Taiwanese.

At the time, the Japanese were also interested in commercial activities in Taiwan. As a result of the economic challenge from the Japanese, the Dutch East India Company levied heavy taxes on the Japanese merchants. In 1628, the Japanese kidnappedgovernorPieter Nuyts and closed down the trading post inNagasaki. It was reopened again in 1632, after Nuyts was extradited to be jailed in Japan.

Amid theconquest of theQing dynasty, the Ming partisanKoxinga invadedDutch Formosa to use as a base for assaults along China's coast. After hissuccessful siege ofFt Zeelandia, he had accomplished this but his rule caused the Qing to revive thesea bans and cut off maritime trade in a bid to weaken him.His dynasty ruled Taiwan as the independentKingdom of Tungning, establishingland distribution systems in order to efficiently supply food for their army.British Empire andJapan continued to trade with Taiwan as an independent state. TheEnglish East India Company even established a commercial treaty with theKingdom of Tungning.

After defeating Koxinga's private army, theQing dynasty had no interest in improving the economy of Taiwan, calling it anuncivilized land (huawai zhi di). Therefore, the economic activities mostly came from the settlements ofmigrants. The most significant economic development during this time period was the establishment ofirrigation systems andhydraulic engineering projects. Theagricultural surplus caused by these improvements led to the export of rice tomainland China. On the other hand, the commercial activities continued throughout major tradingports.Tainan,Lukang, andBanka became the three largest cities in Taiwan.

In 1858, four ports were opened inAnping,Ta-kau,Keelung, andTamsui as a result of pressures from theBritish andFrench Empires after theSecond Opium War. These trading ports exported Taiwanesetea andcamphor and further boosted the economy of Taiwan.

For the most part, Taiwan's economy during the Japanese rule period was a colonial economy. For example, the human andnatural resources of Taiwan were used to aid both the economic andmilitary development of Japan. This policy began underGovernor-GeneralKodama Gentarō and reached its peak in 1943, in the middle ofWorld War II. Before the 1920s, the sugar industry dominated Taiwan's economy, while from 1920 to 1930, rice became the primary export. During these two periods, the primary economic policy of the Office of the Governor-General (OGG) was "industry for Japan, agriculture for Taiwan". After 1930, due to war needs the OGG began to pursue a policy ofindustrialization.^[9]

Under GovernorAkashi Motojiro, a vastswamp in central Taiwan was transformed into a hugedam in order to build a hydraulic power plant for industrialization. The dam and its surrounding area, known today asSun Moon Lake, has become a must-see for foreigntourists visiting Taiwan.

Although the main focus of each of these periods differed, the primary goal throughout the entire time was increasing Taiwan'sproductivity to satisfy demand within Japan, a goal which was successfully achieved. As part of this process, new ideas, concepts, and values were introduced to the Taiwanese; also, several public works projects, such asrailways,public education, andtelecommunications, were implemented. As the economy grew, society stabilized, and popular support for the colonial government began to increase. Taiwan thus served as a showcase for Japan's propaganda on the colonial efforts throughout Asia, as displayed during the1935 Taiwan Exposition.^[9]

After the Kuomintang retreat to Taiwan, the Taiwanese society was relatively stable politically in the 1950s. However, it faced some obstacles economically as a result of the mass destruction duringWorld War II and theChinese hyperinflation in the 1940s. The sudden increase in population caused by the Kuomintang migration frommainland China also affected Taiwan's economy.

Facing the economic pressure, the Kuomintang regime established several economic plans and policies. Of primary importance for the long-run growth of this economy was the commitment to education, beginning with universal elementary education, expanded to upper level schooling as basic levels of literacy were attained. TheNew Taiwan dollars were issued to replace theOld Taiwan dollars. Successfulland reform also took place, enabled by the KMT's position as recent immigrants, not established landowners. In addition, theUnited States aid also helped the reformation of Taiwan's economy.

In the early 1950s,agriculture was the largest economic sector and the vast majority of Taiwanese were farmers.^[10]

The government also carried out animport substitution policy, taking what was obtained byagriculture to give support to theindustrial sector, trading agricultural product exports for foreign currency to import industrial machinery, thus developing the industrial sector. The government raisedtariffs, controlled foreign exchange and restricted imports in order to protect domestic industry. By the 1960s, Taiwan's import exchange industry was faced with the problem of saturating the domestic market. At the same time, the factories of some industrialized nations, because of rising wages and other reasons, slowly moved to certain areas that had both basic industry and low labor costs. By slow steps, the economic policy of Taiwan changed to pursueexport expansion under advice of academic economists such asTa-Chung Liu andSho-Chieh Tsiang ofCornell University. They also promoted allowing interest rates to rise, to encourage domestic savings and expand the amount of resources available to fund new businesses. Additional academic advisers also members ofAcademic Sinica provided sound advice encouraging innovation in agricultural techniques, enabling one of the few successful takeoffs toward modern growth based on agricultural investment in cash crops for export.

A major turning point in Taiwan's economy was during the 1970s. The expulsion of theRepublic of China (Taiwan) from theUnited Nations in 1971, the1973 oil crisis, and the switching of American diplomatic relations heavily affected the economy of Taiwan. But executive premierChiang Ching-kuo'sTen Major Construction Projects served as the basis forheavy industrial development in Taiwan.

After the 1980s, Taiwan's economy began to stabilize. It eventually became one of theFour Asian Tigers as a dynamic capitalist economy. The1997 Asian financial crisis did not affect Taiwan nearly as harshly due to greater restrictions on the outflow of invested foreign capital than were in place in countries hurt by rapid capital flight. TheChen Shui-bian administration in the 2000s focused on joininginternational organizations. Taiwan was able to join theWorld Trade Organization in 2002.

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