This thesis investigates the determinants of Taiwan’s import changes and the underlying factors of the decreasing Swedish export to Taiwan between 1994 and 2005.

The empirical study includes 36 countries from both the Pacific Rim and OECD. Based on a modified gravity model of trade, the regression model aims to examine how GDP growth in the exporting country, exchange rate changes, common language, and membership in APEC affect Taiwan’s import volume. The result shows estimates with expected signs, with 49.8 percent of the vari-ance in Taiwan’s changed import volume explained by the exogenous variables. Exchange rate change and language are statistically significant.

Data on commodity groups of importance for Sweden and Taiwan are also ex-amined, and they show that Taiwan has changed its import demand and has started to import goods other than those Sweden in previous years strongly exported to Taiwan. Taiwan’s regional trading partners have also gained export shares at the expense of Swedish exports.

The results are in line with theory and it will be hard for Sweden in the future to compete with the increasing regional trade of East Asia where common lan-guage and culture are of big importance.