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

Zara Liaqat

Abstract


This paper compares the productivity and other characteristics
of vertically integrated and non-integrated firms to investigate whether
efficiency gains associated with a given liberalisation episode vary
across firms, depending on their organisation. A theoretical setting of
vertical integration in the textile and clothing industry is developed,
to reveal that trade expansion triggers a change in the relative factor
cost of these two types of firms, and consequently, a change in product
range produced by them. The results are further backed by using a sample
of clothing firms in Pakistan for the years 1992-2010 to analyse the
effect of the phasing out of U.S. textile and clothing quotas on
firm-level efficiency. The empirical findings illustrate that an
increase in the level of quotas brings about a significant growth in the
mean productivity of vertically integrated clothing firms. The
diminishing efficiency of non-integrated firms points to the lack of
ability of these firms to benefit from tighter quality control, timely
revision of production policies and guarantee of supplies. JEL
Classification: F13, F14, D24, L23 Keywords: Trade Liberalisation,
Productivity, Vertical Integration, Firm Heterogeneity, Multi-Fibre
Arrangement

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DOI: https://doi.org/10.30541/v57i3pp.283-306

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