Potential Impacts of SARS on Taiwan’s Economy - Ricerca sull'intelligenza artificiale specializzata al MIT

Potential Impacts of SARS on Taiwan’s Economy
Potential Impacts of SARS on Taiwan’s Economy

Ji Chou
Chung-Hua Institution for
Economic Research (CIER)
75 Chang-Hsing Street
Taipei 106
Taiwan
chouji@mail.cier.edu.tw

Nai-Fong Kuo
Shih-Hsin University
1, Lane 17, Mucha Road
Sezione 1, Taipei 116
Taiwan
kkkuuu@cc.shu.edu.tw

Su-Ling Peng
Chung-Hua Institution for
Economic Research (CIER)
75 Chang-Hsing Street
Taipei 106
Taiwan
slpeng@mail.cier.edu.tw

Potential Impacts of the SARS
Outbreak on Taiwan’s Economy*

Astratto
In addition to describing the history of severe acute respiratory
syndrome (SARS) in Taiwan, the government’s measures to con-
tain the outbreak, and the actual economic impacts of SARS on
Taiwan’s economy, this paper presents the results of a
multiregional computable general equilibrium model (Globale
Trade Analysis Project model version 6.2) that predicts the out-
break’s consequences to 31 service and manufacturing sectors in
Taiwan and to the GDP of 16 regions. The results of a short-term
outbreak (less than 1 year), taking into account capital accumula-
zione, are compared with those of a longer outbreak (more than
1 year). The losses to GDP are also predicted for the cases in
Quale (1) China provides complete information on its SARS cases
E (2) it fails to fully disclose the progress of the outbreak there
to the international community. For a short-term outbreak, IL
simulation predicts losses to GDP of the service and manufactur-
ing sectors of 0.67 percent in Taiwan, 0.20 percent in mainland
China, E 1.56 percent in Hong Kong. If SARS is a long-run phe-
nomenon, a lack of transparent disclosure about the progress of
SARS on the part of the Chinese authorities could cause an addi-
tional 1.6 percent decline in China’s GDP, according to the simula-
zione.

1. introduzione

The outbreak of severe acute respiratory syndrome
(SARS), which ªrst occurred in November 2002 in south-
ern China, subsequently infected thousands of people in
32 countries/regions. SARS is medically regarded as an
atypical strain of pneumonia because it causes the lungs to
swell and compress against the chest, making breathing

* This is a revised version of a paper presented at the Asian Eco-

nomic Panel meeting on 11–12 May 2003 in Tokyo.

Asian Economic Papers 3:1

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Potential Impacts of SARS on Taiwan’s Economy

difªcult. Without treatment, SARS patients face a high risk of death. According to
statistics released by the World Health Organization (WHO), as of 7 agosto 2003
there were 8,422 reported cases of SARS, and the total number of deaths was 916
(WHO 2003). More than 90 percent of these cases were reported in Asia.

Taiwan was reportedly ªrst hit by SARS on 17 Marzo 2003.1 On 22 April 2003 an-
other outbreak was reported in a Taiwanese hospital, which led to the quarantine of
thousands of patients and hospital staff. The outbreak’s main economic impact has
been on the tourism industry. Few people wanted to travel and thereby risk being
infected with SARS or quarantined on their return home. Consumer spending was
also hit as people began to shun public places such as department stores and restau-
rants. The impacts of this alarming epidemic have been short and sharp, but fear of
SARS, particularly the uncertainty about whether it is permanently under control,
could still damage Taiwan’s economy further. If another SARS outbreak were to oc-
cur, the full cost of SARS to Taiwan would depend on how long the outbreak lasted
and how far it spread.

Current estimations of the loss to Taiwan’s GDP as a result of the 2003 SARS out-
break range from around 0.1 percent to 1.75 per cento, depending on the type of
model used and its assumptions. Using a macroeconometric model based on quar-
terly data, Chou and Peng (2003) predicted that if SARS were controlled by the end
of June 2003, then Taiwan would see only a 0.2 percent decline in GDP growth for
the whole year, but that this estimate could easily rise to a 0.8 percent decline if
SARS were to last until the end of 2003. Using the input-output table approach, Wu
(2003) predicted a 1.75 percent decline in Taiwan’s GDP for the whole year. These
studies did not consider, Tuttavia, the consequences to Taiwan of the disease’s im-
pacts on the economies of mainland China and Hong Kong. The trade activities of
these areas are closely related to those of Taiwan, and a shock to their trade or in-
vestment is likely to affect Taiwan as well. Most of the data on SARS and Taiwan’s
economy for the second quarter of 2003 (when the disease was at its peak) has now
been compiled, so we are able to evaluate more accurately the potential overall im-
pacts of SARS on the Taiwanese economy.

This study uses a multiregional computable general equilibrium (CGE) modello. Noi
set up simulations of a short-run (static) shock to the services sector and a short-run
(static) shock to the services and manufacturing sectors. Thereafter, using the global
bank assumption of the Global Trade Analysis Project (GTAP) modello, we take into

1 The ªrst reported case of SARS in Taiwan came 20 days after the date of onset of the ªrst

probable case in Taiwan reported by WHO.

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Potential Impacts of SARS on Taiwan’s Economy

account capital accumulation with (and without) a speciªc country risk. This risk
reºects the state of foreign direct investment in mainland China and depends on
China’s attitude toward quickly communicating the true extent of the SARS out-
break to the international community.

2. Development and containment of SARS in Taiwan

Tavolo 1 shows WHO data on SARS cases in 32 countries/regions. As of 7 agosto
2003, the countries and regions worst hit by the SARS epidemic were mainland
China (5,327 reported probable cases), Hong Kong (1,755 cases), Taiwan (665 cases),
Canada (251 cases), and Singapore (238 cases). Taiwan ranked third out of 32 coun-
tries/regions in the cumulative number of probable SARS cases that were reported
to WHO. Of the total number of people reported to have been infected with the
SARS virus in Taiwan, 475 recovered and 180 died. Eighty-six health care workers
were affected. Taiwan was declared free of the virus by WHO on 5 Luglio 2003, 20
days after the onset date of the island’s last probable SARS case, which was reported
SU 15 Giugno 2003.2

The ªrst reported case of SARS in Taiwan was a Taiwanese businessman who had
contracted the disease on a visit to mainland China. The patient was subsequently
released from the National Taiwan University Hospital, fully recovered from the
disease, but members of his family and hospital staff contracted SARS through con-
tact with him. From the initial reported case on 17 Marzo 2003 until 21 April 2003,
the SARS outbreak in Taiwan seemed to have been contained: there was no evidence
of SARS’ having spread and no reported deaths resulting from the virus.

A subsequent outbreak of the disease at the Taipei Municipal Ho-Ping Hospital
brought about the closure of the hospital, and more than a thousand patients and
hospital staff were quarantined. The number of reported probable cases rose from 29
SU 22 April 2003 A 37 SU 23 April 2003, and then climbed dramatically to 100 by
2 May 2003, an alarming increase over such a brief period that represented an aver-
age daily growth rate of 7.1 per cento. As the trend in ªgure 1 demonstrates, it seemed
clear at that time that the SARS outbreak had not yet reached its peak in Taiwan.

On 10 May 2003, the Taipei city government sealed the Huachang Public Housing
Complex in Wanhua district after SARS was suspected to be the cause of death of a

2 The incubation period of the SARS virus is 10 days, but for safety reasons WHO requires that
an area be free of new cases for 20 days before it can be removed from WHO’s list of areas
with local transmission.

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 1. Summary of SARS cases by country/region (1 novembre 2002 A 7 agosto 2003)

Cumulative
number of
cases

Number of
cases that
recovered

Number of
deaths

Number of
HCWs
affected

Date of onset of
ªrst probable
case

Date of onset of
last probable
case

China
Hong Kong
Taiwan
Canada
Singapore
Vietnam
stati Uniti
Philippines
Germany
Mongolia
Thailand
France
Australia
Malaysia
Italy
United Kingdom
India
Republic of Korea
Sweden
Indonesia
Brasile
Macao
Colombia
Finland
Kuwait
New Zealand
Republic of Ireland
Romania
Russian Federation
South Africa
Spain
Svizzera
Total

5,327
1,755
665
251
238
63
33
14
9
9
9
7
6
5
4
4
3
3
3
2
1
1
1
1
1
1
1
1
1
1
1
1
8,422

4,949
1,448
475
200
205
58
26
12
9
9
7
6
6
3
4
4
3
3
3
2
1
1
1
1
1
1
1
1
0
0
1
1
7,442

349
300
180
41
33
5
0
2
0
0
2
1
0
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
916

1,002
386
86
108
97
36
1
4
1
1
1
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,725

16 novembre 2002
5 Febbraio 2003
25 Febbraio 2003
23 Febbraio 2003
25 Febbraio 2003
23 Febbraio 2003
9 Gennaio 2003
25 Febbraio 2003
9 Marzo 2003
31 Marzo 2003
11 Marzo 2003
21 Marzo 2003
24 Marzo 2003
14 Marzo 2003
12 Marzo 2003
1 Marzo 2003
25 April 2003
25 April 2003
—
6 April 2003
3 April 2003
5 May 2003
2 April 2003
30 April 2003
9 April 2003
20 April 2003
27 Febbraio 2003
19 Marzo 2003
5 May 2003
3 April 2003
26 Marzo 2003
9 Marzo 2003
—

25 Giugno 2003
31 May 2003
15 Giugno 2003
12 Giugno 2003
5 May 2003
14 April 2003
13 Luglio 2003
5 May 2003
6 May 2003
6 May 2003
27 May 2003
3 May 2003
1 April 2003
22 April 2003
20 April 2003
1 April 2003
6 May 2003
10 May 2003
—
17 April 2003
3 April 2003
5 May 2003
2 April 2003
30 April 2003
9 April 2003
20 April 2003
27 Febbraio 2003
19 Marzo 2003
5 May 2003
3 April 2003
26 Marzo 2003
9 Marzo 2003
—

Fonte: World Health Organization (2003). Available at http://www.who.int/csr/sars/country/en/country2003_08_15.pdf

Note: HCWs

health care workers. The number of infected HCWs in Thailand and France includes those HCWs who were exposed to

SARS cases that originated outside of Thailand and France.

man at the complex. The SARS outbreak was becoming more serious in Taipei.
Ofªcials could not trace the sources of infection for a large number of people—an
alarming sign that the disease was getting out of control. Nel frattempo, the situation
at the Chang Gung Memorial Hospital in Kaohsiungin was worsening. Hospital
staff had mistakenly placed suspected SARS cases (people who had visited Taipei’s
Jen Chi Hospital) into a regular ward. Three physicians who had taken care of a sus-
pected SARS case were placed in isolation on 11 May 2003. SARS also made inroads
into the eastern Taiwan areas of Hualien and Ilan counties and the offshore islands
of Penghu County on 17 May 2003.

While outbreaks in other parts of the world were being brought under control, Tai-
wanese health authorities reported escalating numbers of cases of SARS and forced
more hospitals to close their doors in the second half of May. The cumulative num-
ber of reported probable cases jumped from 264 SU 15 May 2003 A 676 SU 31 May

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Potential Impacts of SARS on Taiwan’s Economy

Figura 1. Cumulative number of reported probable cases of SARS in Taiwan

Fonte: Center for Disease Control, Taiwan.

Note: A negative number of new cases indicates that some of the new probable cases from the previous tally turned out not to be cases of

SARS.

2003. Over the same period, the number of deaths caused by the SARS virus
climbed from 30 A 81. One spokesperson said at the time, “The SARS outbreak is
the most serious health care crisis that Taiwan has ever seen. The magnitude of the
outbreak is even more grave than that of the enterovirus outbreak in 1998, Quale
claimed the lives of 78 children.”3

There were ºaws in hospital procedures in Taiwan in regard to the SARS outbreak,
including insufªcient vigilance and poor reporting. In spite of good medical labora-
tories and clinical treatment, Taiwan needed to strengthen its disease control, partic-
ularly in hospital emergency rooms. Infatti, the SARS outbreak could have been
brought under complete control in only 4 A 5 weeks if there had been no mass in-
hospital transmission and the public had followed preventive measures.4 With ad-

3 This quotation, by Lee Ming-liang, vice convener of the Cabinet’s SARS prevention commit-

tee, is taken from the 20 May edition of the Taipei Times.

4 Guidelines for such preventive measures were released by the Center for Disease Control,
Department of Health, Republic of China, and are available at http://www.cdc.gov.tw/

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 2. Comparison of aircraft movement, airline passengers, and hotel occupancy rates in
Taiwan between the ªrst and second quarters of 2003

Average number
of total ºights
per day

First quarter 2003
Second quarter 2003
Change (number)
Change (%)

630
444
(cid:1)186
(cid:1)29.5

Number of passengers

Daily average

Arrivals

Departures

211,191
89,145
(cid:1)122,046
(cid:1)57.8

2,876,807
1,174,668
(cid:1)1,702,139
(cid:1)59.2

2,904,950
1,228,472
(cid:1)1,676,478
(cid:1)57.7

Hotel
occupancy
rate

61.69
31.19
(cid:1)30.50
(cid:1)49.44

Fonte: Department of Statistics, Ministry of Transportation, Republic of China.

vice from WHO and the U.S. Center for Disease Control, Taiwan eventually man-
aged to contain the SARS outbreak by mid-June 2003. With a decline in the number
of cases, WHO lifted its warning against nonessential travel to and from Taiwan on
17 Giugno 2003, and on 5 Luglio 2003 it removed Taiwan from the list of areas with recent
local SARS transmission. Taiwan was the last area to be removed from this global
list.

The containment of the SARS virus on 5 Luglio 2003 marks a signiªcant milestone;
Tuttavia, based on what we know about other members of the coronavirus family,
SARS could be a seasonal disease. Taiwan’s government warned the public to re-
main alert to the possibility that SARS might recur in winter 2003 or early in 2004.
Hospitals will need to be vigilant against SARS, and residents have been encour-
aged to take the necessary preventive measures.

3. Economic impacts of SARS and Taiwan’s response

3.1 Economic impacts
The businesses in Taiwan that suffered most from the SARS outbreak belonged to
the airline and tourism-related sectors. Nearly 30 percent of the international ºights
were canceled, with a daily reduction of about 122,000 passengers in the second
quarter of 2003 (table 2). Outbound travel was reduced by 57.7 per cento, and in-
bound passenger trafªc was down by 59.2 per cento. The average occupancy rate of
hotels in Taiwan fell by 30 percent in March, and recreational businesses also suf-
fered severely. The GDP of the air transport sector and the eating and drinking
places sector dropped 22.7 percent and 13.1 per cento, rispettivamente, compared with the
same period a year earlier. Securities and futures, and real estate sectors, which are
sensitive to consumer sentiment, fell by 26.1 percent and 7.7 per cento, rispettivamente.

sarsen/Guideline-e-rev.doc The guidelines consist of procedures for reporting and categori-
zation, epidemic investigation, self-initiated health monitoring and home quarantine, infec-
tious disease treatment, contagion control, testing for SARS, control of prevention materials
(per esempio., masks), and international exchange of information.

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 3. Changes in service sector GDP in Taiwan (2003:Q2)

Amount of GDP
In 2003:Q2
(NT$ million at 1996 prices) Year-on-year change (%) Share (%) Contribution (%) Sector Service sectors (total) Trade and eating and drinking places Wholesale trade Retail trade Retail sale of general merchandise Foreign trade Eating and drinking places Transport, storage, and communications Land transport Water transport Air transport Transport service, storage, and warehousing Communication Finance, insurance, and real estate Financing Securities and futures Insurance Real estate Dwellings Business services Community, social, and personal services Producers of government services Other producers, import duties, and value-added tax Less: imputed bank services charge (1) 0.22 (cid:1)1.02 (cid:1)1.78 (cid:1)0.62 (cid:1)0.81 3.94 (cid:1)13.11 1.60 (cid:1)6.29 8.98 (cid:1)22.68 (cid:1)3.21 (cid:1)3.21 2.98 9.98 (cid:1)26.07 3.32 (cid:1)7.68 0.95 2.13 1.47 1.93 (cid:1)0.99 9.34 (2) 1,508,590 397,193 93,076 159,168 26,115 88,749 30,107 200,098 37,785 18,517 13,057 25,569 93,237 500,697 186,730 15,595 67,572 13,946 216,863 58,977 212,625 230,270 117,263 208,620 (3) 100.00 26.66 6.30 10.64 1.75 5.67 2.30 13.08 2.68 1.13 1.12 1.75 6.40 32.30 11.28 1.40 4.34 1.00 14.27 3.84 13.92 15.01 7.87 12.68 (4) (1) (3)/100 0.21 (cid:1)0.27 (cid:1)0.11 (cid:1)0.07 (cid:1)0.01 0.22 (cid:1)0.30 0.21 (cid:1)0.17 0.10 (cid:1)0.25 (cid:1)0.06 (cid:1)0.21 0.96 1.13 (cid:1)0.37 0.14 (cid:1)0.08 0.14 0.08 0.20 0.29 (cid:1)0.08 1.18 Fonte: Directorate General of Budget, Accounting, and Statistics, Republic of China. Note: The share of each service sector is expressed as a percentage of the total services. GDP is calculated from the data for the second quarter of 2002. The GDP of the services sector as a whole grew by only 0.2 per cento, which was rela- tively low in comparison with its growth during the previous 3 years (table 3). As the SARS epidemic caused people to curb their spending and prevented buyers from attending trade fairs at home and in China, export orders grew at their slowest pace in more than a year. For the ªrst time in 14 months, factories saw a fall in their levels of production. The GDP of the electrical and electronic machinery sector, the share of which had previously accounted for 32 percent of Taiwan’s manufacturing GDP, fell by 2.7 per cento. The effects were also severely felt in non-heavy industrial products such as processed foods, textiles and clothing, leather and fur products, wood and bamboo products, plastic products, and nonmetallic mineral products, all of which had been in decline over recent years. Total manufacturing fell (table 4). As shown in table 5, Taiwan’s economy as a whole fell by 0.08 percent in the second quarter of 2003. This was the ªrst period of negative growth since the onset of the 90 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e – p d / l f / / / / / 3 1 8 4 1 6 8 8 2 5 3 1 5 3 5 3 5 1 0 4 1 7 4 7 9 6 9 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Potential Impacts of SARS on Taiwan’s Economy Table 4. Changes in Taiwan’s manufacturing GDP by sector (2003:Q2) Amount of GDP in 2003:Q2 (NT$ million at
1996 prices)

Year-on-year
change (%)

Share (%)

Contribution (%)

Sector

Total manufacturing sectors
Food products
Tobacco
Textiles and clothing
Wearing apparel and accessories
Leather and fur products
Wood and bamboo products
Furniture and ªxtures
Pulp, paper, and paper products
Printing and processing
Chemical materials
Chemical products
Petroleum and coal products
Rubber products
Plastic products
Nonmetallic mineral products
Basic metals
Fabricated metal products
Machinery and equipment
Electrical and electronic machinery
Transport equipment
Precision instruments
Other industrial products

(1)

(cid:1)0.04
(cid:1)6.07
(cid:1)17.49
(cid:1)12.45
(cid:1)14.02
(cid:1)3.86
(cid:1)9.28
(cid:1)11.95
0.40
2.18
0.66
7.65
13.02
9.19
(cid:1)7.44
(cid:1)2.48
1.99
1.89
7.64
(cid:1)2.72
7.54
9.86
3.18

(2)

647,774
29,808
3,628
22,526
4,962
2,818
1,935
3,397
12,500
5,728
52,883
16,444
46,286
6,821
29,889
20,209
53,905
39,276
34,744
200,248
41,675
6,833
11,247

(1)

(3)/100

(3)

100.00
4.90
0.68
3.97
0.89
0.45
0.33
0.60
1.92
0.87
8.11
2.36
6.32
0.96
4.98
3.20
8.16
5.95
4.98
31.76
5.98
0.96
1.68

(4)
(cid:1)0.04
(cid:1)0.30
(cid:1)0.12
(cid:1)0.49
(cid:1)0.12
(cid:1)0.02
(cid:1)0.03
(cid:1)0.07
0.01
0.02
0.05
0.18
0.82
0.09
(cid:1)0.37
(cid:1)0.08
0.16
0.11
0.38
(cid:1)0.86
0.45
0.09
0.05

Fonte: Directorate General of Budget, Accounting, and Statistics, Republic of China.

Note: The share of each manufacturing sector as a percentage of the sum of all manufacturing sectors is calculated from the data for the

second quarter of 2002.

global recession and the terrorist attack on the United States in September 2001,
when Taiwan’s GDP and the growth of many sectors fell (In 2001:Q2, 2001:Q3, E
2001:Q4). After the containment of the SARS outbreak in July 2003, the economy re-
bounded, and it is currently expected to grow steadily.

3.2 Government policies
On 1 May 2003, President Chen Shui-bian warned Taiwan’s citizens that they should
prepare for a long ªght against the SARS outbreak. He announced the immediate
need for the island to build up an internationally standardized epidemic control sys-
tem and make comprehensive efforts to contain the outbreak.5 The president put
forward the following ªve guidelines aimed at defending Taiwan from the many ef-
fects that the SARS outbreak had inºicted on the island’s citizens:

1. Medical authorities would fully implement quarantine measures to prevent the

spread of SARS.

5 In “Prepare for Long Fight, Chen Says,” Taipei Times, 2 May 2003. Available at
http://www.taipeitimes.com/News/taiwan/archives/2003/05/02/204317

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 5. Quarterly growth rate of Taiwanese GDP, by industry
(percentage, 2000:Q1–2003:Q2)

GDP growth rates (%) year on year

Real GDP

Manufacturing
sector

Service
sector

Agriculture
sector

Mining
sector

Water and
electricity
sector

Construction
sector

2000
Q1
Q2
Q3
Q4

2001
Q1
Q2
Q3
Q4

2002
Q1
Q2
Q3
Q4

2003
Q1
Q2

7.94
5.10
6.73
3.82

0.61
(cid:1)3.26
(cid:1)4.42
(cid:1)1.58

0.94
3.67
5.21
4.52

3.53
(cid:1)0.08

9.98
6.27
10.67
2.64

(cid:1)1.22
(cid:1)6.74
(cid:1)9.79
(cid:1)4.52

1.38
7.32
8.61
7.50

7.83
(cid:1)0.04

8.58
5.65
5.66
4.74

1.63
(cid:1)1.37
(cid:1)1.28
0.55

1.33
2.64
3.95
3.29

2.23
0.22

1.62
0.52
1.95
0.73

(cid:1)0.95
(cid:1)1.58
(cid:1)1.33
(cid:1)4.07

2.96
2.78
5.93
7.19

(cid:1)1.54
0.12

(cid:1)15.82
(cid:1)7.38
0.85
2.35

(cid:1)1.61
(cid:1)16.12
(cid:1)9.44
(cid:1)4.71

1.34
8.38
5.64
(cid:1)5.84

(cid:1)16.76
(cid:1)20.66

7.14
6.38
6.93
8.20

5.89
1.45
0.49
(cid:1)2.76

(cid:1)1.94
3.51
2.77
4.18

3.70
1.46

(cid:1)8.48
(cid:1)7.13
(cid:1)2.92
(cid:1)3.18

(cid:1)6.36
(cid:1)12.47
(cid:1)17.88
(cid:1)13.29

(cid:1)9.64
(cid:1)4.68
1.17
2.42

(cid:1)0.38
(cid:1)6.23

Fonte: Directorate General of Budget, Accounting, and Statistics, Republic of China.

2. A SARS task force would be established with medical experts from the Depart-

ment of Health and the National Health Research Institutes.

3. Government agencies would provide twice-daily updates of the available infor-
mation on SARS prevention to help calm the public’s fears about the virus.

4. The government would make regular reports to the foreign representative ofªces

and embassies in Taiwan about the latest SARS developments.

5. The government would provide necessary relief funds to compensate those in-
dustries that suffered losses from SARS, including tourism, transportation, E
recreation-related businesses.

The government would also, under the guidelines, undertake supplementary mea-
sures to reinforce the medical health and security of Taiwanese businesspeople in
mainland China, as well as measures to encourage Taiwanese businesspeople to re-
locate their China-based industries to Taiwan. Inoltre, Taiwan would reinforce
its collaboration with the health authorities in Hong Kong and mainland China.

In consequence of the severity of the situation, the Taiwan legislature promptly
completed both the second and third readings of the special regulations (the ªve
guidelines listed above) within a single day to demonstrate their willingness to co-
operate with the nationwide effort to contain the SARS outbreak. A special fund to-
taling NT$50 billion was proposed to subsidize SARS-related medical expenses and 92 Asian Economic Papers l D o w n o a d e d f r o m h t t p : / / d i r e c t . m i t . / e d u a s e p a r t i c e – p d / l f / / / / / 3 1 8 4 1 6 8 8 2 5 3 1 5 3 5 3 5 1 0 4 1 7 4 7 9 6 9 p d . f b y g u e s t t o n 0 8 S e p e m b e r 2 0 2 3 Potential Impacts of SARS on Taiwan’s Economy to mitigate the economic impacts on local industries. The bill proposing the fund also stipulated that the government must compensate the families of nurses who gave their lives in ªghting the epidemic. This compensation would take the form of subsidies for the educational expenses of the victims’ children. The bill, which was part of the special regulations, also stated that the government must ensure the pro- tection of both the working rights and the members of the families of quarantined people, and that necessary measures should be undertaken to compensate hospitals and clinics that were shut down temporarily as a direct result of SARS. The National Science Council launched a NT$38 million project to study clinical symptoms, seek
methods of diagnosis and treatment, develop technologies for rapid detection, E
create vaccines and medicines.

President Chen Shui-bian later presented the Executive Yuan with a NT$300 billion budget that expanded public construction and public services over the subsequent 3 years to buffer the impact of the SARS epidemic. A ªnal measure included in the special regulations was that any person suspected of having the SARS virus who subsequently and deliberately transmitted the virus to any other person could face a period of 3 years in jail or a maximum ªne of NT$500,000.

4. Simulations using the GTAP model

4.1 Methodology
IL 0.08 percent fall in Taiwan’s GDP in the second quarter of 2003 was caused not
only by the outbreak of SARS, but also by the structural changes and cyclical pattern
of the Taiwanese economy. We conduct a computable general equilibrium analysis
to identify the impacts of SARS on Taiwan’s economy. Exports from Taiwan to main-
land China and Hong Kong currently account for one-third of the island’s total ex-
ports, and the largest proportion of Taiwan’s foreign direct investment (FDI) is tar-
geted at these areas. Thus the economic impacts on Taiwan as a direct result of the
SARS outbreak cannot be effectively estimated without taking the situations in both
mainland China and Hong Kong into account. We therefore utilize a multiregional
CGE model, the GTAP model version 6 with the GTAP database version 5. The data
are aggregated into 16 regions and 31 sectors. A detailed description of the model’s
structure can be found in Hertel (1997).6

We carry out short-run and long-run simulations. For the short-run simulations (In
which the SARS outbreak lasts 1 year or less), we ªx the capital stock for each re-

6 Modiªcations of the model in newer versions can be found at the GTAP home page

(http://www.gtap.agecon.purdue.edu/).

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Potential Impacts of SARS on Taiwan’s Economy

gion. For the long-run simulations (in which the SARS outbreak continues for longer
di 1 year), we use the steady-state approach discussed by Francois, McDonald,
and Nordstrom (1996) to take account of the linkages among investment, production
capacity, and growth. In the short run, a change in investment has only demand-
side effects, whereas in the long run a change in investment will affect the steady-
state capital stock.

4.2 Foreign direct investment
From an investor’s point of view, a commitment by the Chinese government to
transparency reduces that country’s risk factor. For instance, a recent Deutsche Bank
survey on investor attitudes toward FDI in mainland China found that the number
of respondents who were concerned about policy risks arising from the Chinese
government’s handling of the SARS situation had climbed to 58 percent prior to
20 April 2003 but had subsequently fallen to 33 percent when remedial measures
were eventually taken (Mamma 2003). Following Malcolm’s (1998) treatment of country
risks, our model adopts the setup of Weng, Hsu, and Hsu (2002), using a coefªcient
for investment attractiveness as a means of adjusting a country’s expected return on
capital. Così, in our model:

RORE(R) = RORG/INVATT(R),

where RORE(R) is the expected return on capital in region r, RORG is the global level
of return on capital, and INVATT(R) is the investment attractiveness coefªcient in re-
gion r. As long as a country has greater investment attractiveness than competing
countries, it will attract more foreign investment, even if the expected return on cap-
ital is the same as that in the competing countries. The value of this investment at-
tractiveness coefªcient is estimated and calibrated from a regression analysis de-
scribed in Chou et al. (2002).

4.3 Simulation design
Tavolo 6 shows the basic scheme of our simulations. Scenario 1 considers only the im-
pacts on the service sectors in terms of the short-run losses, as currently being ob-
served over the whole year (2003). Scenario 2 includes the impacts on both the ser-
vice sectors and manufacturing sectors, in terms of losses in 2003. Scenario 3 takes
into account capital accumulation and a shock on total factor productivity as a long-
run phenomenon (cioè., the SARS outbreak lasts over 1 year) and includes the effect
of a positive change in the transparency policy of mainland China. Scenario 4 is sim-
ilar to scenario 3, but it assumes nontransparent reporting of the SARS outbreak by
the Chinese authorities. Because the SARS outbreak spanned almost a full quarter,
we divide our simulation results by 4 to assess the impact in a quarter with unem-
ployment (CGE models typically assume full employment).

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 6. Simulation design

Service sectors

Manufacturing sectors

Foreign direct investment

Transparent reporting of
SARS outbreak by China

Nontransparent reporting of
SARS outbreak by China

Short-run simulations (static)

Long-run simulations (steady state)

Scenario 1
(cid:1)

Scenario 2
(cid:1)

(cid:1)

Scenario 3
(cid:1)

Scenario 4
(cid:1)

(cid:1)

Tavolo 7. Hypothetical changes in Taiwan’s household consumption and exports,
by sector (percentage)

Sector

Household consumption (%)

Exports (%)

Agriculture and mining
Food processing
Textiles
Wearing apparel
Leather products
Wood products
Paper products and publishing
Petroleum and coal products
Chemical, rubber, and plastic products
Mineral products
Ferrous metals
Metals
Metal products
Motor vehicles and parts
Transport equipment
Electronic equipment
Machinery and equipment
Other manufacturing
Construction
Public utilities
Trade
Land transportation
Water transportation
Air transportation
Communications
Financial services
Insurance
Business services
Recreational and other services
Public administration, defense, formazione scolastica, and health
Dwellings

0.50
0.48
—
(cid:1)5.82
—
2.60
—
—
—
—
—
—
—
—
—
—
—
—
—
0.80
—
(cid:1)6.29
8.98
–22.68
(cid:1)3.21
6.00
3.32
2.13
–13.16
1.91
2.60

5.32
(cid:1)3.39
(cid:1)9.27
(cid:1)8.14
(cid:1)6.60
(cid:1)7.62
0
0
8.09
(cid:1)3.99
(cid:1)2.20
(cid:1)2.96
(cid:1)4.24
16.47
0
3.62
4.00
19.58
—
—
—
—
—
—
—
—
—
—
—
—
—

Note: A dash indicates the model predicts that the sector was not affected by the SARS outbreak.

The hypothetical changes in Taiwan’s household consumption and exports, shown
in table 7, are calculated from the news reports about industrial responses to the
SARS outbreak. Household consumption, Per esempio, is likely to fall by 22.68 per-
cent in the air transportation sector and by 6.29 percent in the land transportation
sector. Increases are expected in household consumption of agricultural products,
food and food products, public administration (including health care), and housing
because of the strong demand for medical treatment and related activities. The data
in table 7 are adjusted to account for the effects of the disease in mainland China

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 8. Predicted percentage changes in GDP caused by SARS

Short-run simulations

Long-run simulations

Areas

Taiwan
China
Hong Kong
Japan
South Korea
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
Southeast Asia
Australia and New Zealand
NAFTA
European Union
Rest of the world

Scenario 1
(cid:1)0.55
(cid:1)0.13
(cid:1)1.68
(cid:1)0.02
(cid:1)0.02
0
(cid:1)0.06
0.01
(cid:1)1.30
0
0.01
0.01
(cid:1)0.01
(cid:1)0.03
(cid:1)0.01
(cid:1)0.01

Scenario 2
(cid:1)0.67
(cid:1)0.20
(cid:1)1.56
0.01
0.03
0.01
(cid:1)0.02
0.04
(cid:1)1.07
0
0.06
0.02
0.01
(cid:1)0.01
0.01
0.01

Scenario 3
(cid:1)2.05
(cid:1)0.18
(cid:1)4.43
0.14
0.06
0.09
(cid:1)0.14
0.07
(cid:1)1.86
0.08
(cid:1)0.05
0.11
0.05
0.06
0.14
0.09

Scenario 4
(cid:1)1.64
(cid:1)1.80
(cid:1)3.88
0.92
0.44
0.36
0.29
0.38
(cid:1)1.34
0.91
0.30
0.27
0.74
1.00
0.96
0.49

Note: The short-run simulations predict changes to GDP resulting from a SARS outbreak that is contained in less than 1 year. IL

long-run simulations predict changes to GDP resulting from a SARS outbreak that lasts for over 1 year. Scenario 1

impact on ser-

vice sectors of a short-term outbreak; scenario 2

impact on service and manufacturing sectors of a short-term outbreak; scenario 3

impact of long-term SARS outbreak on service and manufacturing sectors if China engages in transparent reporting of SARS cases;

and scenario 4

impact of long-term SARS outbreak on service and manufacturing sectors if China fails to report the true extent of its

SARS cases to international authorities.

and Hong Kong, given their regional differences (per esempio., size of the country and indus-
trial structure) and differences in the extent of the SARS outbreak. The ªgures in ta-
ble 7 are then imposed on the model as the shocks of the SARS outbreak from Tai-
wan, China, and Hong Kong.

4.4 Simulation results
Tavolo 8 shows the results of the simulations under the four scenarios deªned in
table 6. For scenario 1 (a static analysis), the changes to GDP as a result of a short-
term SARS outbreak in 2003 are a reduction of 0.55 percent in Taiwan, UN 0.13 per cento
decline in mainland China, and a signiªcant fall of 1.68 percent in Hong Kong. In all
four scenarios, the main impacts occur in the service sectors. Scenario 2 includes the
impacts on the service sectors and manufacturing sectors in terms of short-run
losses over 2003 (also a static analysis), and the simulation predicts a 0.67 per cento
decline in Taiwan, UN 0.20 percent decline in mainland China, and a fall of 1.56 per-
cent in Hong Kong. If a SARS outbreak were to last a year or more (considered a
permanent or long-run phenomenon), and we take the effects on capital accumula-
tion into account (scenario 3), then the negative impacts on GDP would rise to 2.05
percent for Taiwan and 4.43 percent for the worst case, Hong Kong, while remaining
about the same for mainland China (0.18 per cento). The model also predicts that the
GDP loss for China would be considerably worse if the government did not im-
prove its disclosure of the overall SARS situation in the mainland (scenario 4 In

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Potential Impacts of SARS on Taiwan’s Economy

Tavolo 9. Predicted percentage changes in Taiwan’s output caused by SARS

Short-run simulation

Long-run simulation

Sector

Agriculture and mining
Food processing
Textiles
Wearing apparel
Leather products
Wood products
Paper products and publishing
Petroleum and coal products
Chemical, rubber, and plastic products
Mineral products
Ferrous metals
Metals
Metal products
Motor vehicles and parts
Transport equipment
Electronic equipment
Machinery and equipment
Other manufacturing
Construction
Public utilities
Trade
Transportation
Water transportation
Air transportation
Communications
Financial services
Insurance
Business services
Recreational and other services
Public administration, defense,

formazione scolastica, and health

Dwellings

Scenario 1
(cid:1)0.19
(cid:1)0.28
(cid:1)0.41
(cid:1)0.43
(cid:1)0.56
(cid:1)0.56
(cid:1)0.56
(cid:1)0.53
(cid:1)0.54
(cid:1)0.54
(cid:1)0.55
(cid:1)0.54
(cid:1)0.57
(cid:1)0.51
(cid:1)0.52
(cid:1)0.50
(cid:1)0.50
(cid:1)0.52
(cid:1)0.50
(cid:1)0.41
(cid:1)0.53
(cid:1)4.89
(cid:1)0.47
(cid:1)7.46
2.24
(cid:1)0.45
(cid:1)0.53
0.21
(cid:1)2.02

(cid:1)0.02
(cid:1)0.33

Scenario 2
(cid:1)0.20
(cid:1)0.32
(cid:1)0.48
(cid:1)0.04
(cid:1)0.61
(cid:1)0.67
(cid:1)0.70
(cid:1)0.67
1.94
(cid:1)0.68
(cid:1)0.68
(cid:1)0.67
(cid:1)0.64
(cid:1)2.50
(cid:1)0.66
0.48
(cid:1)0.63
(cid:1)0.62
(cid:1)0.60
(cid:1)0.50
(cid:1)1.05
(cid:1)5.00
(cid:1)0.59
(cid:1)7.56
2.14
(cid:1)0.55
(cid:1)0.64
0.14
(cid:1)2.14

(cid:1)0.16
(cid:1)0.40

Scenario 3
(cid:1)0.64
(cid:1)0.89
(cid:1)1.98
(cid:1)3.50
(cid:1)2.12
(cid:1)1.69
(cid:1)1.93
(cid:1)2.05
(cid:1)1.72
(cid:1)1.97
(cid:1)2.82
(cid:1)2.48
(cid:1)3.70
(cid:1)4.29
(cid:1)3.13
(cid:1)1.50
(cid:1)1.99
(cid:1)2.24
(cid:1)1.76
(cid:1)1.96
(cid:1)2.24
(cid:1)3.09
(cid:1)0.85
(cid:1)4.83
(cid:1)1.29
(cid:1)2.02
(cid:1)2.12
(cid:1)1.72
(cid:1)3.14

(cid:1)1.88
(cid:1)1.74

Scenario 4
(cid:1)0.42
(cid:1)0.70
(cid:1)1.84
(cid:1)2.95
(cid:1)1.80
(cid:1)0.97
(cid:1)1.61
(cid:1)1.74
(cid:1)1.53
(cid:1)1.57
(cid:1)2.45
(cid:1)2.42
(cid:1)3.25
(cid:1)3.87
(cid:1)2.67
(cid:1)0.87
(cid:1)1.65
(cid:1)1.58
(cid:1)1.26
(cid:1)1.61
(cid:1)1.83
(cid:1)2.67
(cid:1)0.39
(cid:1)4.32
(cid:1)0.83
(cid:1)1.59
(cid:1)1.66
(cid:1)1.23
(cid:1)2.71

(cid:1)1.47
(cid:1)1.34

Note: The short-run simulations predict changes to GDP resulting from a SARS outbreak that is contained in less than 1 year. IL

long-run simulations predict changes to GDP resulting from a SARS outbreak that lasts for over 1 year. Scenario 1

impact on ser-

vice sectors of a short-term outbreak; scenario 2

impact on service and manufacturing sectors of a short-term outbreak; scenario 3

impact of long-term SARS outbreak on service and manufacturing sectors if China engages in transparent reporting of SARS cases;

and scenario 4

impacts of long-term SARS outbreak on service and manufacturing sectors if China fails to report the true extent of

its SARS cases to international authorities.

table 8). No such corresponding losses would be expected, Tuttavia, for Taiwan or
Hong Kong. Other Asian countries are also predicted to suffer declines in GDP
resulting from the SARS outbreak (per esempio., Malaysia and Singapore), although South
Korea, Vietnam, and Southeast Asia as a whole might see some slight gains in GDP.
Countries other than China fare better in scenario 4 than in scenario 3 because
nontransparent reporting of the outbreak by the Chinese authorities would lead to
investment’s being redirected to these areas.

Tavolo 9 shows that most sectors in Taiwan (except communications and business ser-
vices) would suffer from decreased output in the short-run scenarios, but all sectors
in Taiwan are expected to suffer losses if the SARS outbreak lasts for more than a
year.

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Potential Impacts of SARS on Taiwan’s Economy

5. Conclusions

The worldwide inºuenza epidemic of 1918–19 caused the death of 40 million peo-
ple, but we are conªdent that such a devastating outcome from SARS has been
avoided. Our analysis indicates that the impact of any SARS outbreak on the Tai-
wanese economy is contingent on the way that the SARS situation is dealt with in
mainland China and Hong Kong, given Taiwan’s proximity and continuing busi-
ness relationships with these seriously affected areas.

We ªnd that the GTAP multiregional CGE model predicts that Taiwan will suffer
only moderately from a SARS outbreak, compared with the losses in mainland
China, Hong Kong, and even Singapore. This is mainly because of the importance of
the tourism industry in these three most-affected areas. Compared with other indus-
tries, tourism by its nature involves many more personal interactions, and thus a
higher likelihood of spreading the virus.

The accurate and timely reporting of SARS cases is crucial to controlling the interna-
tional spread of the virus. Such transparency by a country will affect the ability of
that country to attract FDI. Incorporating this idea into the model simulations, we
ªnd that a lack of transparent reporting by China will cause an additional 1.6 per-
cent loss in GDP in the long run. Those countries that have dealt effectively with the
SARS outbreak might gain some degree of international competitiveness because of
their increased attractiveness to FDI.

The current fear is that a recurrence of SARS will seriously damage the economy in
Taiwan. Prompt effective actions by the government will, no doubt, reduce the costs
and help revive the economy sooner.

Riferimenti

Chou, Ji, Kun-Ming Chen, Shiu-Tung Wang, and Nai-Fong Kuo. 2002. Trade and Direct Invest-
ment across the Taiwan Strait—An Empirical Analysis of Taiwan and China’s Accession into
the WTO. Paper presented at the Sixth Annual Conference on Global Economic Analysis,
5–7 June, Taipei.

Chou, Ji, and Su-Ling Peng. 2003. The Economic Outlook of Taiwan: Second Quarter (in Chinese).
Taipei: Chung-Hua Institution for Economic Research.

Francois, Joseph F., Bradley J. McDonald, and Hakan Nordstrom. 1996. Assessing the Uruguay
Round. In The Uruguay Round and the Developing Economies, edited by Will Martin and L. Alan
Winters. Cambridge: Cambridge University Press.

Hertel, Thomas W. (ed.). 1997. Global Trade Analysis—Modeling and Applications. Cambridge:
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Potential Impacts of SARS on Taiwan’s Economy

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Malcolm, Gerard. 1998. Model Country Risk and Capital Flows in GTAP. GTAP Technical Pa-
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