Cost relationships and globalization in the Australian clothing industry

Abstract

ABSTRACTAustralia developed a substantial clothing industry with protectionist international trade policies, including prohibitively high tariffs, quotas, and subsidies. The industry became an important source of jobs, with over 6.5 per cent of total manufacturing employment at the close of the 1960s. As Australia has moved towards freer trade, employment in clothing production has fallen substantially. The question of whether the clothing industry can remain viable in its new environment became an important issue. Here, we examine two crucial economic considerations relating to that question: economies of scale and relations (substitute/complementary) between the various inputs, both domestic and outsourced foreign. The findings strongly indicate the presence of economies of scale and that the industry has reduced its unit costs over the period of study. The results also suggest that most of the inputs are substitutes for one another, although only the estimated cross price elasticities between capital and labour are highly statistically significant in both models utilized in the study. To be successful in the future, the Australian clothing industry will likely need to find market niches where it can offer superior products and/or service as well as further reduce its unit costs.