Dynamic comparative advantage and industry characteristics as basis for trade in textiles and clothing

Abstract

This paper examines dynamic comparative advantage in textiles and clothing trade and the country specific factors that explain variations of comparative advantage among the trading nations. Comparative advantages are estimated constructing indices of revealed comparative advantage (RCA) using export shares of textiles and clothing industries over 1981-2005. The estimated RCA indices of absolute and relative change show that while comparative advantage in both textiles and clothing is tilted towards the developing economies, a number of developed high income economies possess comparative advantage over extended periods. In the second stage, RCA indices are regressed against some country specific industry characteristics such as capital/labour ratio, wage rate and industry sizes. The estimated models show significant relationship between comparative advantage and the country characteristics. Results of this study provide evidence of changes in the pattern of comparative advantage in textiles and clothing over the decades when multi fibre arrangement (MFA) type trade restrictions were in place. These evidences have implications for the trading nations in the ongoing liberalised trade regimes.