Determinants and Efficiency of Textile Sector Exports, an Analysis by Stochastic Frontier Gravity Model

Abstract

This dissertation attempts to investigate the important determinants of Pakistan’s textile exports employing stochastic frontier gravity model approach covering time period from 2003-2017. The dissertation also explores the export gap between actual and potential exports by calculating the efficiency scores of Pakistan’s textile exports versus each trading partner. The augmented gravity model incorporates not only the conventional determinants of exports but trade stimulating and resisting variables like tariffs, exchange rate, colonial links, common language and contiguity have also been used to study, the relationship between export flows and other independent variables. The results corroborate that textile exports follow gravity patterns. The traditional variables like exporters and importers’ GDP contribute significantly to export flows. The variable of distance comes out to be insignificant in case of Pakistan’s textile sector exports. This study finds a negative and significant impact of tariffs on textile exports. Moreover, effect of trade stimulating variables like Preferential Trading Agreements and contiguity were found to be insignificant in case of Pakistan textile exports. The exports’ efficiency analysis revealed that Pakistan’s textile exports are well below the optimal level and there exists a huge untapped exports’ potential with its trading partners. The results of the study call for in depth investigation of trade potential that exist with trading partners. By integrating more with neighboring countries and by realizing the untapped huge export potential with other trading counterparts, we can not only increase our integration at international level but can also contribute significantly to foreign exchange earnings that will lead to a decline in escalating trade deficit.