TAIPEI - A Taiwanese proposal for an agreement establishing closer links with China could add up to 1.72 percent to Taiwan's gross domestic product, according to a think tank report commissioned by the economics ministry.

The Chung-Hua Institution for Economic Research said the suggested accord, by boosting trade and lowering tariffs, would add between 1.65 and 1.72 percent to GDP if fully implemented.

Taiwan, home to the world's top two contract chip makers and whose firms make 80 percent of laptops globally, had GDP totalling about $390 billion in 2008.

Freer trade and economic cooperation between Taiwan and China presents a key opportunity to resolve difficulties that the Taiwanese economy is facing, Bih Jane Liu, a vice president of the Chung-Hua institution, told a news conference.

Taiwan could also see an additional $8.9 billion in global foreign direct investments in the next seven years if ties are normalised under the proposed agreement, known locally as the Economic Cooperation Framework Agreement (ECFA), the ministry said. China has said previously it is open to discussion about such an accord but has not specified any timing for talks.

Officials said the deal would also create about 260,000 jobs in Taiwan, where the jobless rate hit a record 5.9 percent in June.

Economics Minister Yiin Chii-ming said during the news conference Taiwan planned to discuss the plan with China in October and hammer out key details by the end of the year, though no actual date has been set for the signing of the agreement.

Taiwan's export-reliant economy has been badly battered by the global economic slowdown, with its first-quarter GDP contracting by an annual 10.24 percent as demand for the island's tech gadgets plummets as consumers cut spending.

The year-old administration of Taiwan's President Ma Ying-jeou, which was elected on a platform of closer economic ties with China, has been turning to its giant neighbour to help revive the sagging economy.

China and Taiwan have been administered separately since the Nationalists fled the mainland in 1949, and economic and political contact has been severely curtailed by the governments on both sides of the strait.

Taiwan's stock market is now the world's second-best performer this year, ranking behind China among 30 share indexes tracked by Thomson Reuters, as investors bet that closer ties could provide more business opportunities for Taiwanese companies.

Many of Taiwan's largest companies such as contract chipmaker TSMC (2330.TW) (TSM.N) and AU Optronics (2409.TW) (AUO.N) have also been reporting a turnaround in business, which they have credited partly to growth in Chinese consumer demand. (Reporting by Argin Chang and Kelvin Soh; editing by Lee Chyen Yee and Stephen Nisbet)

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