Participating regional economic integrations has been a certain policy in Taiwan. However, the industries, such as automobile, which the products are mainly sold in domestic market and has always been dominated by Japanese brands in Taiwan, may be negatively affected when Taiwan open markets and the Japanese automobile producers adjust their distribution of supply chain. Therefore, by adopting the regression model proposed by Lewbel (2012) as well as the questionnaires and interviews, this paper aims to investigate the price elasticity of imported vehicles, and the impact of tariff elimination toward imported vehicles on the sales of domestically produced automobiles. The results of the regression and the questionnaire show that if Taiwan reduces the tariff on imported automobiles, especially on the Japanese vehicles, the impact of the tariff elimination alone will reduce the number of domestically produced vehicles by about 4%-6%. However, if we dynamically consider that the Japanese parent companies may withdraw some of the automobile production lines form Taiwan, and import the vehicles produced in Japan instead, it will cause even severe long-term impact on domestically produced vehicles.
Keywords: regional economic integration, model of supply and demand, automobile industry
JEL Classification: F14, F15, L62
Publication：Chung-Hua Institution for Economic Research