ABSTRACT
This chapter is the quantitative component for the research project on the economic impact of diplomatic engagement with Taiwan and China. We apply the Difference-in-Differences (DID) approach to investigate whether an event that occurred in a certain year leads to better or worse economic performance – be it the severance of diplomatic ties with Taiwan in exchange for the recognition of China, or the launch of significant Chinese investment programs in the region. According to our empirical results, South Africa’s economy did not improve after it cut ties with Taiwan in 1998. Croatia, the Czech Republic, Hungary, Montenegro and Slovenia also did not perform better economically, relative to Turkey, after the launch of China’s 16+1 initiative, which excluded Ankara. Results from Latin America and the Caribbean also cast doubt on Beijing’s assertions that the Belt and Road Initiative (BRI) brings great economic benefits to its partners. In Oceania, Tonga, which switched recognition to China in 1998, has still not shown stronger economic performance than neighboring countries, while Taiwan’s partner, Tuvalu, has enjoyed positive economic growth relative to its control country.
