Status at the Margins: Why Paraguay Recognizes Taiwan and Shuns China

Why do some states choose to recognize de facto states, even when this involves potential costs? We explore this question through the case of Paraguay–Taiwan relations, arguing that Paraguay uses its diplomatic recognition policy for status seeking, which generates intangible and material benefits that offset the macroeconomic opportunity costs of foregone Chinese investment, aid and credit. We build an econometric model to estimate Paraguay's “Taiwan cost” and then develop a qualitative case study that draws on semi-structured interviews with actors in Paraguayan foreign policymaking to explain the domestic dynamics that underpin the relationship. We advance recent work on small states’ pursuit of international status by illustrating how small and de facto states follow different status-seeking rationales than those commonly recognized in the literature. We also build on that literature by exploring how elite structures shape status seeking. Though unusual, the case of Paraguay–Taiwan relations has broader implications for bilateral relationships with de facto states and status-seeking strategies of small states.