Effects of trade cost on the textile and apparel market: evidence from Asian countries

Abstract

Global textile and apparel industry has since the 1950s been subjected to various forms of trade policy measures. Well noted among these are tariffs and non-tariff barriers (NTB)/policy indicators. Understanding the dynamics in such relevant policy indicators and the implications they yield for trade is a vital step toward informing relevant policy formulation and agribusiness investment decisions. With the textile and apparel industry being the primary grounds on which development in most Asian countries is founded, we for the first time in literature assess effects of various trade cost indicators on global textile and apparel imports from 37 Asian countries using a 'cost-incorporated' gravity model for the period 1988-2004. Estimates from this study affirm theory-based associations between trade, distance, cultural linkage, tariffs, and non-tariffs barriers. We however discovered quite interesting associations regarding effects of tariff increments and existence of NTB. Although both are primarily imposed/instilled to restrict trade flow, effect of tariff increments was consistently negative across all models, but that for NTB was consistently positive, although significant only in the case of apparel imports. Plausible reasons behind the implications for tariffs and NTB are elaborated on in this article. A keen discovery from this study, however, is that imports of apparels are more responsive than textile imports to dynamics in various trade-related cost, geographic and economic indicators.