The End of Multi-Fibre Arrangement and Firm Performance in the Textile Industry: New Evidence

Abstract

Using a sample of 321 textile and clothing companies for the years 1992 to 2010, this paper analyses the effect of quota phase-outs on firm-level efficiency in Pakistan following the end of the Multi-Fibre Arrangement (MFA). It highlights sectoral heterogeneity within the manufacturing industry as a result of MFA expiration. The empirical methodology uses the structural techniques proposed by Olley and Pakes (1996), and Levinsohn and Petrin (2003) 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. We offer a number of explanations for this outcome, such as a change in the input and product mix, entry by non-exporters in the clothing sector, and sectoral differences in quality ladders. A number of crucial policy lessons can be drawn from the findings of this study. JEL Classification:F13; F14; D24; C14; O19 Keywords: Multi-Fibre Arrangement, Trade Liberalisation, Productivity, Firm Heterogeneity, Simultaneity and Production Functions, Endogeneity of Protection

Differing Impact of Liberalisation: The Case of Vertically Integrated Clothing Firms

“…The effect of quota phase-outs in the form of the end of MFA on firm-level efficiency has recently been analysed by Liaqat (2014). The study uses a sample of textile and clothing companies to display that MFA expiration leads not only to an increase in the average productivity of textile producing firms but a significant reduction in the mean productivity of clothing producers.…”

“…Liaqat (2014) offers a number of explanations for this outcome, such as, a change in the input and product mix, entry by non-exporters in the clothing sector and sectoral differences in quality ladders, and draws some crucial policy lessons from this study. Despite its remarkable results, Liaqat (2014) makes no distinction between the clothing firms, producing their own inputs as opposed to the ones buying raw materials from other textile companies. In fact, the vertically integrated clothing firms are referred to as clothing firms alone, regardless of their production of T&C industry intermediate goods.…”

Female Earnings in the Apparel Industry Post-MFA: Evidence From Pakistan

“…Chen et al (2019) studied the impact of MFA/ATC on working conditions using labor force survey data in case of Pakistan. Liaqat (2013aLiaqat ( , 2013b investigated the impact of MFA on firm's productivity using Karachi stock-listed firms data in case of Pakistan. This study will fill this research gap by examining the impact of globalization on female worker's wages in the T&C sector in the case of Pakistan.…”