Investment anticipation is a volatile economic variable. Although investment anticipation cannot represent actual investment behavior, its continuous decline will reflect future investment levels, lower productivity growth, and thus inhibit the overall growth of the economy. It is therefore important to focus attention on this variable at all times and diagnose its movement.
Investment anticipation surveys have been conducted semiannually in Taiwan since 1976. However, surveys separated by six months cannot reflect instantaneous economic fluctuations that influence investment at different times. In addition, the institutions carrying out these surveys have been reluctant to release the detailed contents of the surveys. Thus, to investigate investment anticipation at a particular time, an additional survey is needed.
This study presents the results of such an additional survey, and finds that investment anticipation declined slightly, but insignificantly, at the end of 1984 in Taiwan. The reasons for this were as follows: (1) the slowing down of the worldwide economic recovery; (2) the rising protectionism; (3) a decline in the comparative advantages of some of Taiwan’s traditional manufacturing sectors; and (4) increased domestic consumer consciousness.
In general, the determinants of investment are output demand, profit margins, the tax structure, and interest rates. The study also finds that the technological level of production is now an important additional determinant.
The analysis conducted in this study reveals that investment anticipation has declined because the domestic economy is in transition: Traditional industries are losing their comparative advantages, while at the same time more advanced industries have yet to be well established.
So long as the government continues to implement the current economic liberalization program, the overall economic climate should improve and investment anticipation should again begin to rise. In the short run, the government should concentrate its efforts on improving the investment climate to smooth the current process of transition.
