Introduction
Trade in Textile and Clothing is generally considered as the first step towards industrialisation. It is important in creating jobs and also foreign exchange receipts through trade in the short run. In the long run, it provides an opportunity for sustainable economic development if appropriate policies and institutions are in place (Keane and Willem te Welde, 2008).
It was one of the key drivers of industrialisation in Great Britain in the 18th century. Even now, it continues to play a key role in development of countries in early phases of industrialisation. On an average, Textile and Clothing industry contributes to about 7% of GDP in Low Income Countries (Keane and Willem te Welde, 2008).
Even in the last few decades, it proved to be a key component of low income and developing countries. It has played an important role in China’s export led growth in the past few decades. In the 1980’s, Textile exports formed a significant part of China’s exports. This was followed by a transition to manufacture and export of Clothing products which typically use textiles as an input and have higher value addition associated with them. With time, as China’s manufacturing industry diversified and more developed, the contribution of these two to the overall exports dropped (Figure 1). This is in line with the standard theory of industrialisation which begins with low value added manufacturing goods and later transforms into manufacture of high value added goods.
Figure 1: Contribution of Textile and Clothing to Total Exports (China) (Source: WTO)
Intra Industry Trade is another factor that helps determine the level of maturity of an industry. High levels of Intra Industry Trade signify a mature and developed industry. In China, Textile industry reached an Intra Industry Trade level of 75% around the same time that Textile industry’s contribution to trade began declining. (Figure 2) It eventually reached nearly a 100% before falling down again. This may possibly due to decline in domestic textile manufacturing due to rising costs. At the same time, role of textiles in exports kept declining. In clothing, IIT remained low, signifying an export oriented manufacturing industry.
Figure 2: China’s IIT in Textile and Industry
Textile and Clothing manufacturing is now being seen as the starting steps to industrialisation by South Asian nations as well. In this paper, I analyse the role of Textile and Clothing in trade pattern of Bangladesh, India, Pakistan and Sri Lanka. Table 1 shows the average contribution Textile and Clothing as a percentage of GDP for countries in different levels of development (Keane and Willem te Welde, 2008)
Country Group
|
T&C as a % of GDP
|
GDP Per Capita (PPP)($)
|
Least Developed Countries
|
1.1
|
2710.6
|
Low Income Countries
|
7.0
|
3822.1
|
Low Middle income Countries
|
3.4
|
6419.1
|
Table 1: Average value of Textile and Clothing (T&C) as % of GDP, GDP Per Capita (PPP) (Keane and Willem te Welde, 2008)
All 4 countries chosen for this analysis lie around the Low Income and Low middle income category. These nations also have a similar structure in terms of contribution of manufacturing sector to their total GDP (Table 2). Hence, all of these are now competing with each other to be the next destination for manufacture and export of Textile and Clothing products in order to boost their manufacturing sector. I analyse the following variables for each country:
- Total Export and Import in Textiles (Primary source from WTO)
- Total Export and Import in Clothing (Primary source from WTO)
- Total Merchandise Export and Import (Primary source from WTO)
- Total Intra Industry Trade (IIT) estimated using 1, 2
- Export and Import as a percentage of total merchandise export or import estimated using items listed as 1, 2 and 3 above
Country
|
GDP per capita (PPP, $) (2015)
|
Industry Value Added (% of GDP) (2015)
|
Bangladesh
|
3332.8
|
28.15%
|
India
|
6088.65
|
30% (2014)
|
Pakistan
|
5041.72
|
18.99%
|
Sri Lanka
|
11738.88
|
30.71%
|
Table 2: GDP per capita (PPP) and Industry VA (%) by country (2015)
However, the approach for the same has been entirely different and the process of development of these industries has been entirely different in each country.
Bangladesh
In terms of percentage of Clothing and Textile in total merchandise exports of Bangladesh shows a story similar to that of China - a major role played by textiles followed by clothing (Figure 3). The IIT trend lines (Figure 4) in clothing and textiles also show saturation in textiles around the same time as decline in textile exports (as % of total exports) and eventual decline in IIT. However, it still has not dropped to the level seen in case of China. This possibly signifies continued presence of low cost manufacturers within Bangladesh. In addition, owing to its small size and lack of alternative industries coming up, Bangladesh now has a high dependency on clothing exports. As of 2015, 82.16% of its total merchandise exports were made of clothing.
Figure 3: Textile and Clothing Export as a fraction of Total Merchandise Export
Figure 4: Textile and Clothing IIT in Bangladesh
India
India’s story of trade in textiles and clothing in very different. There is a low level of Intra Industry trade (Figure 5) but at the same time, there is a low level of contribution of Textile and Clothing to total exports of the country (Figure 6). This is largely due to India’s large country size. As a result, India’s trading patterns seem to be highly diversified, from primary commodities like Rice to high value added products like pharmaceuticals. At the same time, India has not shown a strong tendency for export led growth in merchandise as compared to China and Bangladesh. It has instead focused on export in services, typically IT services.
Figure 5: Textile and Clothing IIT in India
Figure 6: Textile and Clothing exports as a fraction of Total Merchandise exports in India
Another interesting point is that India’s export patterns do not follow the trend of transition from textile to clothing that was followed by China and Bangladesh. In fact, the contribution of textile and clothing to total exports are nearly equal and seem to be moving together, both in terms of contribution to total exports and absolute value. (Figure 7)
Figure 7: Total Exports in Textile and Clothing in India
Pakistan
Pakistan still seems to be having a higher level of export in textiles as compared to clothing (Figure 9). At the same time, IIT in both these industries is low (Figure 8) suggesting that these industry are still in either infant or rapidly growing stage. The transition from textile to clothing industry still hasn’t taken place in Pakistan. This is also supported by other macroeconomic evidences about South Asian countries collected at the beginning of the paper. Out of all 4 South Asian nations, Pakistan has the lowest level of Value Added to GDP coming from manufacturing sector (Table 2). This suggests that Pakistan’s Textile and Clothing sector (and possibly industrial sector as well) is lagging behind as compared to Bangladesh, India and Sri Lanka.
Figure 8: Textile and Clothing IIT in Pakistan
Figure 9: Textile and Clothing export as a fraction of Total Merchandise Export in Pakistan
In fact, analysis of Industries’ share of GDP for the last 2 years actually shows a stagnation and decline in Pakistan’s industrial sector characterised by a drop in contribution of around 21% to around 19%. This could possibly be attributed to political instability and domestic conflict in Pakistan in different areas.
- There is an ongoing conflict in its North-West provinces bordering Afghanistan against Taliban and related factions.
- A conflict in South-West provinces of Balochistan. Factions in Balochistan are demanding autonomy and independence from Pakistan.
- In addition, Pakistan’s relations with India have become extremely stressed over the past couple of years in the region of Kashmir.
Sri Lanka
Sri Lanka seems to be another interesting case. It’s IIT has remained low in both textile and clothing (Figure 10). In terms of exports, it seems to have taken a direct jump to clothing (Figure 12). It’s clothing exports have risen while maintaining negligible export of textiles as a percentage of its total exports. While it may have been possible that Sri Lanka made a switch before the time frame considered in this analysis, a study of Sri Lanka’s total merchandise trade shows that the country has historically indulged in negligible trade that has risen rapidly since the 1990’s only (Figure 11). This suggests that a direct jump was made instead of a transition from textile to clothing.
Figure 10: Textile and Clothing IIT in Sri Lanka (Dip around 1998 and 2000 is due to unavailability of data)
Figure 11: Sri Lanka’s Total Merchandise Export (in mm)
Figure 11: Export in Textile and Clothing as a fraction Total merchandise export and Import in Clothing as a fraction of total Merchandise Import in Sri Lanka (Dip in 1998 is due to unavailability of data)
On the other hand, there seems to be a correlation between import of textiles and export of clothing. This seems to suggest that Sri Lanka has adopted the Global Value Chain approach in order to use clothing as a tool of industrialisation. This also seems logical since Sri Lanka happens to be a very small island nation with limited land and human resources. At the same time, Sri Lanka has the same level of reliance on Textiles and Clothing together as a share of its total exports as Pakistan. However, in case of Pakistan, textiles take a majority share of the two and it’s the other way around in case of Sri Lanka.
Conclusion
The above analysis shows that all 4 nations are still developing Textile and Clothing industry as a source of employment as well as revenue from trade. However, the approach and its result has been different for all 4. In case of Bangladesh, it has followed the same trend as China but has led to an over dependence on trade of clothing due to lack of alternative industries to shift to. In case of India, the two industries are growing and moving in parallel. Since India is a big country and has trade revenue from other higher value sources (services and pharmaceuticals), it lacks the focus in these industries like present day Bangladesh or China of 1980’s. Pakistan is still at a nascent stage of industrial development compared to all other nations and is still trading more in textiles as compared to clothing. Sri Lanka has adopted the approach of being a part of a GVC in clothing industry wherein it imports textiles as an intermediate product and processes them to produce clothing as the final good.
Comparison of these nations with each other is difficult due to huge variations in their sizes relative to each other. Hence, relative parameters like percentage of total exports and IIT were used for most of the analysis. In absolute value of exports, Bangladesh is leads in export of clothing and India leads in export of textiles. However, transition to other high value industries must take place for Bangladesh and Sri Lanka if they wish to sustain the growth levels that they have achieved through export of clothing. At the same time, Pakistan should find a way to transition to manufacture and export of clothing. India should look towards mechanisation and modernisation of its textile and clothing industry if it wishes to stay competitive with its low cost neighbours.
There is another aspect of this trade phenomenon. The competition between these nations for business opportunities also creates a price war between them which MNCs of clothing and apparel industry exploit by bargaining between them and getting better deals for themselves. As a result, the wages in these countries tend to remain low and the real proceeds from this trade go to the MNCs which enjoy a strong negotiating power against them. This is a long term challenge that South Asian countries can only tackle with cooperation instead of competition.
References
[1] Keane, Jodie and Willen te Velde, Dirk. 2008. The role of textile and clothing industries in growth and development strategies. [Online] Available at: https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/3361.pdf [Accessed: 2016, December 8]
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