Indian Journal of Science and Technology

Abstract

Background/Objectives: Textile and clothing is leading sector of Pakistan’s trade. After the abolition of Multi-Fibre Agreements (MFA) in 2005, Pakistan’s textile sector exports along with the China’s textile exports were the promising candidates to acquire greater share in the world market. Mainly because Pakistan was one of the most restricted country by the quotas followed by China. After the phasing out of MFA, China’s textile exports reaped the full benefit and acquired a larger share in world market, while Pakistan’s share in international market remained stagnant overtime. This study explores the crowding-out effect of China’s textile exports for textile export of Pakistan in international market for the period 2003 to 2015. Methods: A modified gravity model is used for the purpose. Model is estimated by Instrumental variable 2 stage least squares (IV2SLS). Which is applied by Generalised Method of Moments (GMM) to data. Other determinants of Pakistan’s textile exports are also included in the model. Findings: It is found that Gross domestic product (GDP) of importing country, GDP of Pakistan and common language with importing countries have positive significant effect for textile exports of Pakistan while, China’s textile exports have a significantly negative effect for Pakistan’s textile exports along with the distance of importing country from Pakistan and the fact that importing country is landlocked. Implication: It is found that Pakistan’s textile exports are facing crowding-out effect from China’s textile exports. The result may have implications for other developing countries which are trying to follow export led growth policy by focusing mainly on textile sector and are in the same phase of development.

Keywords: Crowding-Out, Exports, Gravity Model, Textile Sector, Trade