Location, profitability, and international trade liberalization in European textile-clothing firms

Abstract

In the European traditional manufacturing sector (TMS), there is a vigorous debate concerning the real impact of international trade liberalization on firm profitability. Based on firm-level data from five European countries, we analyze how location, productive subsector, and firm characteristics are associated with the profitability of the European textile-clothing industry in the pre- and post-trade liberalization period. Our results reveal that the externalities derived from geographical proximity were diluted after international trade liberalization. Moreover, larger companies and those that focus on high value-added products, as represented by Northern European firms, show a stronger association with profitability. Accordingly, this observation calls into question the future of some TMS activities in a globalized world. Therefore, manufacturing strategies and industrial policies should be location- and context-specific.