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'textile And Clothing Sector Of Pakistan Post Multi Fibre Arrangement (Mfa) Abolition And The Role Of Heterogeneous Firms'

3101 words - 13 pages

Edwards (2012) pointed out that MFA on textile and clothing, which came into effect to put quotas in 1974 on yarn, fabric, made-ups and clothing, were started to be phased out through negotiations held under the Uruguay Round in 1994, through the Agreement on Textiles and Clothing (ATC). Eventually all quotas were done away with in 2005 (with restrictions phased-out, starting with 1995, 1998, 2002, and 2005 (Gopalan and Shanmugam (2010)), giving in turn, unrestricted access to developing exporters of developed markets.

Historically, studies that empirically tested trade theories, did that at the sectoral level; for example, studies by Bowen and Sviekauskaus (1992), and Leamer and Levisohn ...view middle of the document...

These costs are taken as sunk costs, furthermore uncertainty due to numerous reasons (either supply or demand) may cause persistence in export participation. As Roberts and Tybout (1997) highlight that option value of awaiting additional information for the firms participating in export activity may lead them to continue to export even when it might be unprofitable.

Melitz (2008) pointed out that micro-level data indicated significant link between a firm being an exporter and having higher level of productivity. Furthermore, he pointed towards increase in productivity of firms upon entry into the export market (especially for developing countries). Having said that Bustos (2006), and Verhoogen (2007) indicate that firms invest in raising productivity once they decide to enter export market, but it is mostly better doing firms in the first place that invest for bringing technological enhancement and decide to achieve competitiveness for entering the export market (Melitz, 2008).

Similarly, Clerides (1998) and Bernard and Jensen (1999) indicated that firms that were more productive than others, selected themselves to enter export markets. Aw and Hwang (1995) pointed out that firms that were least productive, eventually exited. Also, Asuyama et al. (2013) studied the Cambodian case, and found out frequent turnover of firms, whereby new entrants had higher average total-factor productivity than those that had left; resulting in overall productivity growth and gains in workers' welfare achieved by the Cambodian garment industry after 2004.

Kalirajan and Bhide (2005) took data of 7,800 Indian corporate firms and employed a varying coefficient model to explore the impact economic reform had on the output of the heterogeneous manufacturing firms. The study indicated that R&D, followed by export intensity had a significantly positive impact on output, and in turn technical efficiency and competitiveness. Similarly, Gopalan and Shanmugam (2010) estimated efficiency values for 215 Indian firms, whereby the study indicated that during 1993/94-2005/06, there was a decline in average efficiency due to inefficient use of inputs.

Bleaney and Wakelin (1999; p. 8-9) taking 110 UK firms level data from the manufacturing sector, focusing on both inter- and intra-sectoral aspects, indicated, 'Firms with higher average wages, lower unit labour costs (an efficiency measure), higher capital intensity and higher R&D expenditures all tend to have higher exports'; while firm size also has a positive bearing on export propensity. The study mainly concluded that technical innovation played significant role in boosting UK exports.

Moreover, Pavcnik (2002) attributes the reallocations between producers due to trade liberalization, as the underlying reason behind productivity of competing export sectors of Chile, a conclusion that is also supported by Bernard at al. (2006). This further indicates that such a reallocation leads to increase in overall average...

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