Under the Japanese, the island was developed as a major source of foodstuffs for Japan. Production of rice and sugar increased rapidly, but little effort was directed toward industrialization until after 1937. Immediately after World War II, a number of factors—including repatriation of Japanese technicians, dismantling of industrial plants, and lack of fertilizer for agriculture—caused a rapid deterioration of the economy, which was aggravated by the influx of refugees from the mainland. The situation improved after 1949 with the removal of the ROC government to Taiwan. The arrival of technical and experienced personnel and capital equipment from the mainland facilitated the island's economic rehabilitation. Currency and tax reforms stabilized the monetary situation. The supply of fertilizer from the United States and a land reform program aided the revival of agricultural production.
Energetic government measures in the form of successive four-year plans, at first supplemented by US aid, resulted in substantial economic progress. In the first decade (1951–60), the stress was on agricultural development and the establishment of textile and other labor-intensive industries. From 1961 to 1970, the promotion of industrial products for export was emphasized. In 1963, Taiwan registered its first favorable trade balance. By 1965, the economy appeared stable enough to warrant the cessation of US economic aid programs. Medium and light industry led the expansion, with striking gains registered in electronics, household goods, and chemicals. The decade 1971– 80 saw the development of such capital-intensive industries as steel, machinery, machine tools, and motor vehicle assembly. Such industries, based on imports of raw materials, were encouraged through massive government support for major infrastructural improvements in roads, railroads, ports, and electricity. During the 1980s, emphasis was placed on the development of high-technology industries. As a result, between 1981 and 1991, the share of high-technology industries in total manufactures increased from 20% to 29%, making Taiwan the 7th largest producer of computer hardware on the global market. The 1990s brought an influx of capital-rich investment, especially after 1996 when the first democratic elections were held. High-technology industries accounted for over 73% of total manufacturing, and 67% of exports in 1999. Growth accelerated in the late 1990s, measuring 4.6% in 1998, 5.4% in 1999 and 6% in 2000, spurred by the boom in the PC and IT industries. Exports played an increasing role, accounting for 47.8% of GDP in 1998, 48.3% in 1999 and 54% in 2000. Growth in high-tech exports peaked at 54% in the third quarter of 2000.
Taiwan's GNP advanced at an average annual rate of 9% in real terms between 1952 and 1980. In contrast to Taiwan's industry-led economic growth of previous decades, since the late 1980s the country has undergone a shift towards a servicesdominated economy. As of 2000, services made up about 66% of the GDP, compared to less than 50% in the mid-1980s and 44% in the early 1960s. Taiwan has the world's third largest foreign exchange reserves and over $230 billion in two-way trade. Though still expanding in absolute terms, industry's share of the GDP declined from 52% in 1986 to 32% in 2000. Agriculture has continued to claim only a small share of the economy, making up 2% of the GDP in 2000. A lack of domestic resources hampers the development of agriculture and primary industries. An earthquake in September of 1999 caused major damages to Taiwanese lives and property, but reconstruction was complete by 2000. What affected the economy was the burst of the dot.com bubble beginning in late 2000, and the global slowdown in 2001, aggravated by the aftermath of the 11 September 2001 terrorist attacks on the United States. Taiwan experienced its first recorded decline in real GDP, -2.2%. Recovery began in the last quarter of 2001, and in 2002 real growth of 3.2% was recorded. Inflation has been generally falling in the late 1990s, from 3.1% in 1996 to 0% in 2001 and a slightly negative -0.2% in 2002. Unemployment, by contrast, has increased steadily, from 2.6% in 1996 to 5.2% in 2002.