The determinants of demand and supply of textile and clothing
exports of Pakistan are examined for seven major trading partners (US,
UK, Canada, Italy, France, Japan and Spain) over the period 1972 to
2013. The simultaneous equation model is estimated by Generalised Method
of Moment to handle simultaneous equation bias and for consistent and
more precise estimates classical Empirical Bayes technique is applied.
The results reveal that income of trading partners and devaluation
policy has important and significant role in explaining exports
performance of textile and clothing of Pakistan. As regards the supply
side, the relative prices and capacity variable are important in
determining the textile and clothing exports, however, the real wages
have significant but small effect on textile and clothing exports
supply. The removal of quantitative restrictions fails to provide
incentives to the suppliers. The high income elasticity for the demand
suggests that focus should be on raising the factors which can help in
expansion of textile and clothing products in local market and marked
countries. Keywords: Textile and Clothing Exports of Pakistan,
Simultaneous Equations, Real Effective Exchange Rate, Agreement on
Textile and Clothing