The Determinants of the Textile Index: Linear or Nonlinear

Abstract

This paper analyzes the Keqiao Textile Index of China, which reflects China Textile City, the leading wholesale textile market in China. China Textile City is a textile entrepot with the most extensive scale and the largest line of business in China, and it is the largest specialized market for light textile in Asia as well. Thus, it is worthwhile to analyze this index. In this paper, 10 variables that represent the factors that significantly influence the Textile Index are selected from the set of possible variables that are deemed to be valid to the index. 6 variables are identified as nonlinear and 4 as linear by the nonparametric method. Then, varying-coefficient partially linear models are established, dividing the index into five terms: one nonparametric term and four linear terms. Each of the five terms comprises approximately 20% of the index, with the linear terms accounting for nearly 80%. Among the six nonparametric variables, cotton index A plays the most important role. The empirical and simulated results consistently show that the percent of each of the five terms would not vary substantially during the sample period if cotton index A were not more than twice the sample mean. Thus, textile prices can be regulated by properly adjusting the cotton price.