Fields of Concentration
Development Economics; International Trade
The Impact of Trade Liberalization on Firm Performance in Developing Countries – New Evidence from Pakistani Manufacturing Sector
Professor Jeffery Nugent
Professor Cheng Hsiao
Professor Carol Wise
Professor John Strauss
Professor Robert Dekle
The End of Multi-Fibre Arrangement and Firm Performance in Textile Industry: New Evidence
An important development of the Uruguay Round in 1994 was to put an end to the Multi-Fibre Arrangement (MFA). Using a sample of 321 T&C companies for the years 1992 to 2010, this paper analyzes the effect of the phasing out of quotas on firm-level efficiency in Pakistan. We use structural techniques proposed by Olley & Pakes and Levinsohn & Petrin in order to take care of endogeneity in the estimation of production functions. The results differ for the two industries: MFA expiration lead to an increase in the average productivity of textile producing firms but a significant reduction in the mean productivity of clothing producers. The paper offers several possible explanations as to why this might be the case, such as, a change in input and product mix, entry by non-exporters in clothing sector, a change in the composition of T&C exports, and sectoral differences in quality ladders.
Differing Impact of Liberalization: The Case of Vertically Integrated Clothing Firms
This paper compares the productivity of vertically integrated and non-integrated firms to investigate whether or not efficiency gains associated with a given liberalization episode vary across firms depending on their organization. Using a sample of clothing firms in Pakistan for the years 1992-2010, it analyzes the effect of phasing out of U.S. textile and clothing quotas on firm-level efficiency. A theoretical background to vertical integration in clothing industry shows that liberalization causes a change in the relative factor cost of the two types of firms, and consequently, a change in the product range produced by them. The empirical findings illustrate that an increase in the adjusted level of quotas brings about a significant reduction in mean productivity of clothing firms that are not vertically integrated. Conversely, productivity of vertically integrated firms, on average, goes up as there is growth in the level of quotas. The declining efficiency of non-integrated clothing firms points to the inability of these firms to benefit from tighter quality control, timely revision of production policies, and greater stability of supplies.