Competitiveness analysis of Egyptian cotton exports with special focus on the Chinese market

Abstract

Purpose – The expected growth of China's cotton imports along with Egypt's quest for penetrating new cotton importing markets have together attracted the authors to investigate the competitiveness and the demand for Egyptian cotton in the Chinese market in order to capture the emerging opportunities that Egypt could gain from such a growing market. The paper aims to discuss these issues Design/methodology/approach – The paper employs Balassa's index of revealed comparative advantage and Vollrath's indices of revealed competitive advantage in order to measure the competitiveness of Egyptian cotton exports. An Almost Ideal Demand System (AIDS) approach was then used to estimate demand parameters for Chinese cotton imports from Egypt and major supply sources during the period 1992-2011. Findings – Results show that Egypt has experienced dramatic declines in its cotton comparative advantage over the analyzed period. The estimation results of the AIDS model indicate that Egypt's market share is positively affected by both own and US export prices, but negatively influenced by export prices of other competitors in the Chinese market. Results also indicate that Egyptian cotton is substitutable for cotton imports from all other regions, especially for US cotton. Moreover, additional Chinese expenditure on cotton imports would favor other suppliers. Finally, demand for Egyptian cotton was found to be more sensitive to price changes and there is a greater tendency for China to switch to Egyptian cotton than the other way around should relative prices change. Originality/value – This paper is original and novel in that; despite numerous studies have been done on China's demand for cotton and the several studies have been carried out on export and marketing of Egypt's cotton, the issue of cotton trade between Egypt and China has rarely been empirically examined. Furthermore, our results update important parameter estimates, particularly import demand elasticities of cotton. For Egypt, the study provides useful policy implications that could help policy makers to improve informed decision making with regard topromoting cotton exports to the Chinese market. For China, the study helps understanding the interrelationship between the Chinese cotton market and other emerging exporting markets, while focusing on the Egyptian market.