THE ECFA AND ITS IMPACT ON TAIWANESE FIRMS.

Abstract

This thesis evaluates the effects of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China on Taiwanese manufacturing firms’ value added, value added per employee and enterprise value. The empirical strategy used is a difference-indifference specification, carried out over a firm-level panel data from 2010 to 2018. The results show that as industries face lower tariff for their exports to China, firms have higher value added and value added per employee, although the latter is statistically insignificant. Enterprise value has a positive relationship with China’s tariff reduction and firms that have subsidiary links with China display a stronger relationship. Taiwan’s tariff reductions also have a positive impact on enterprise value, especially through the channel of input tariff concession. These effects are found after taking into account firm-fixed effect, firm-specific linear time trend and sector-year fixed effect.