custom_taxonomy drop down works, but is not heirachical

I have created a drop down of my custom taxonomies using the code below:

function get_terms_dropdown($taxonomies, $args){
$myterms = get_terms($taxonomies, $args);
	$output ="<select name='{TERM}'>";
	foreach($myterms as $term){
		$root_url = get_bloginfo('url');
		$term_taxonomy=$term->taxonomy;
		$term_slug=$term->slug;
		$term_name =$term->name;
		$link = $term_slug;
		$output .="<option value='".$link."'>".$term_name." (".$term->count.") </option>";
	}
	$output .="</select>";
return $output;
}

I then place this in my template:

<form action="<?php bloginfo('url'); ?>" method="get">
	<div>
<?php
$taxonomies = array('{TERM}');
$args = array('orderby'=>'name','hierarchical'=>true);
$select = get_terms_dropdown($taxonomies, $args);

$select = preg_replace("#<select([^>]*)>#", "<select$1 onchange='return this.form.submit()'>", $select);
echo $select;
?>
	<noscript><div><input type="submit" /></div></noscript>
	</div></form>

It outputs a dropdown populated with the terms but the terms are list totally flat. They are not hierarchical, but 'hierarchical'=>true has been set to true.

Does anyone have any ideas, why the 'hierarchical'=>true is not getting read?

Thank you!