The Determinants of Pakistan Exports of Textile: An Integrated Demand and Supply Approach

Abstract

The determinants of demand and supply of textile and clothing exports of Pakistan are examined for seven major trading partners (US, UK, Canada, Italy, France, Japan and Spain) over the period 1972 to 2013. The simultaneous equation model is estimated by Generalised Method of Moment to handle simultaneous equation bias and for consistent and more precise estimates classical Empirical Bayes technique is applied. The results reveal that income of trading partners and devaluation policy has important and significant role in explaining exports performance of textile and clothing of Pakistan. As regards the supply side, the relative prices and capacity variable are important in determining the textile and clothing exports, however, the real wages have significant but small effect on textile and clothing exports supply. The removal of quantitative restrictions fails to provide incentives to the suppliers. The high income elasticity for the demand suggests that focus should be on raising the factors which can help in expansion of textile and clothing products in local market and marked countries. Keywords: Textile and Clothing Exports of Pakistan, Simultaneous Equations, Real Effective Exchange Rate, Agreement on Textile and Clothing