| This paper uses the case study of Taiwan's petrochemical industry to test the validity of some hypothesis regarding the reasons for economic success of Asian NICs. It it shown that import-substitution has been selectively used as a subordinate strategy in Taiwan's export-led growth. It has been used to promote local upstream production of the exportable so as to maximize domestic value-added per exported product. However, no automatism can be assumed for this kind
of linkage to materialize, especially because the petrochemical sector is very capital-intensive. The state played a crucial role in the initial setting-up stage of the petrochemical industry, and provided help and subsidies until the present time, thus contradicting the neoclassical hypothesis. The
sustained growth of the downstream exporting sector provided the basis for the success of its
upstream import-substitution. However, the state increased its subsidies in the later period without significant effects on growth, reflecting the growing political clout of this industry and the decline in the state's autonomy. Thus, the study lends only partial support to Wade's "governing the market"
hypothesis, for the objective of industrial policy has become blurred in the 1980's.