The determinants and Efficiency of Textile Exports

Abstract

Background The textile exports comprise the two third of total exports of Pakistan. However, its weak export performance in the recent past years has not only effected GDP growth but also worsened trade balance of Pakistan. Objective The objective of this study is to develop econometric models for exports flows (both at sectoral level as well as firm level) in order to have more precise and accurate estimations of these variables. To examine relative impact of external as well as internal determinants of exports by considering bilateral trade data. The assessment of the technical efficiency and potential of Pakistani sectoral exports with trading partners. Method By incorporating stochastic frontier specification in gravity model, this study examines: (a) the major determinants, (b) efficiency and (c) potential of textile exports of Pakistan by using the data during a time period of 1995-2018. Data The data set covers textile export of Pakistan with 105 trading partners for the period of 1995-2018. This is the maximum frequency of data available in terms of time. The annual bilateral textile exports (in USD) details have been collected from UN-COMTRADE database. Results The results reveal that textile exports of Pakistan are positively associated with GDPs of trading partners and inversely related to bilateral distance. This study reports negative impact of import tariff and domestic currency exchange rate on textile exports. The estimates also illustrate that cultural similarities, colonial links, reciprocal and non-reciprocal trade agreements have positive while contiguity shows insignificant impact on textile exports. The efficiency results demonstrate that Pakistan’s textile exports are well below the optimal level and there exists a considerable untapped textile export potential with bordering, Asian and European countries. Further, the efficiency analysis implies that textile exports efficiency of Pakistan is positively associated with political stability and overall domestic economic freedomwhile, negatively related to tax burden.

Conclusion:

This study examined the determinants, efficiency and potential of textile export in Pakistan to its 105 export destinations for the period of 1995-2015. Based on augmented gravity model, a stochastic export frontier was developed showing the optimal level of bilateral textile exports. Subsequently, the exports efficiency has been derived based on exporter and importer specific variables as well as characteristics. The estimates corroborate that textile exports follow the principles of gravity model of international trade. However, the higher coefficient of Pakistan’s GDP compared with importers GDP confirms the existence of strong home effect. The study observes that import tariffs and bilateral exchange rate inversely effecting textile export of Pakistan. The study also finds that cultural similarities, colonial links, non-reciprocal preferential trade agreements and bilateral free trade agreements positively affect textile exports performance of Pakistan. Whereas, the common border effect has been observed negative. The relationship has also been confirmed by additional econometric techniques. The efficiency estimates reveal that Pakistan’s textile exports efficiency remains average at 27.73 % during the time period. In addition, the results show a downward trend in textile export efficiency in successive years. The analyses of technical efficiency determinants imply that textile exports efficiency is positively associated with government stability business, trade and labour market freedom while, negatively associated with tax burden. The study also finds that textile exports of Pakistan are far less than its optimal exports level therefore, export gap is present with all of the trading partners.