Export Success and Industrial Linkages

Export Success and Industrial Linkages

Export Success and Industrial Linkages The Case of Readymade Garments in South Asia Shahrukh Rafi Khan with Diva Dhar Mariam Navaid Manisha Pradhananga Farah Siddique Ashima Singh and Siyumii Yanthrawaduge

Export Success and Industrial Linkages Copyright Shahrukh Rafi Khan, 2009. S o f t c o v e r r e p r i n t o f t h e h a r d c o v e r 1 s t e d i t i o n 2 0 0 9 9 7 8-0 - 2 3 0-6 0 8 5 0-4 All rights reserved. First published in 2009 by PALGRAVE MACMILLAN in the United States - a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-37551-6 DOI 10.1057/9780230622128 ISBN 978-0-230-62212-8 (ebook) Library of Congress Cataloging-in-Publication Data Khan, Shahrukh Rafi. Export success and industrial linkages : the case of readymade garments in South Asia / by Shahrukh Rafi Khan with Diva S. Dhar. p. cm. 1. Clothing trade South Asia Case studies. 2. Exports South Asia Case studies. I. Dhar, Diva S. II. Title. HD9940.S642K43 2009 382.456870954 dc22 2008043244 A catalogue record of the book is available from the British Library. Design by Macmillan Publishing Solutions First edition: June 2009 10 9 8 7 6 5 4 3 2 1

This book is dedicated to Mount Holyoke College

Contents List of Annexures List of Tables Preface xiii Part I Concepts and Background 1 1 Research Question, Conceptual Framework, and Background 3 2 The Textile and Readymade Garment Industry in South Asia: A Brief History and Reemergence 25 Part II Country Case Studies 41 3 The Readymade Garment Sector in Bangladesh 43 4 The Readymade Garment Sector in India 57 5 The Readymade Garment Sector in Nepal 83 6 The Readymade Garment Sector in Pakistan 99 7 The Readymade Garments Sector in Sri Lanka 119 Part III Synthesis of Exporter Findings and Importer Survey 135 Synthesis and Conclusion 137 Appendix 145 Notes 153 References 171 Index 181 ix xi

List of Annexures 1.1 Management Research Questions 21 1.2 Economic Bureaucrat Research Questions 24 2.1 Garment exports from South Asia to the World 38 2.2 Garment exports to the United States from South Asia and China, 2004 2007 39 2.3 Garment exports to the European Union from South Asia and China, 2004 2007 40 4.1 List of Interviewees in India 81 5.1 List of Interviewees and firms in Nepal 97 6.1 List of Interviewees in Pakistan 117 7.1 List of Interviewees in Sri Lanka 130 7.2 Producer Associations in Sri Lanka 131 Annexure I Importer Research Questions 148 Annexure II Importer Mail-In Questionnaire 149 Annexure III Importer Mail-In Letter 151

List of Tables 1.1 RMG as a percentage of total exports in South Asia 14 1.2 Product selection within the RMG sector by country 14 1.3 Interviews by country and respondent type 15 1.4 Comparative social data for South Asia and China 16 1.5 Comparative economic data for South Asia and China 17 1.6 Comparative data on business conditions in South Asia and China 18 1.7 Procedural trade hurdles faced by South Asian countries and East Asia and the Pacific 19 2.1 The economic significance of textiles and clothing in Japan, 1874 1987 27 2.2 Contribution of textile and clothing to South Asian economies 35 2.3 Growth in South Asian and Chinese garment exports to the United States and European markets, 2004 2007 35 3.1 Value of the main apparel export items from Bangladesh 45 3.2 Distribution of major RMG exports from Bangladesh by major destination 45 3.3 Comparison of Bangladesh s productivity in the RMG sector with other countries 48 3.4 Comparative unit price of selected apparel items exported from Bangladesh to the United States 48

xii List of Tables 4.1 Export growth, value, and export share of the RMG sector in India 58 4.2 Percentage growth in Indian apparel and textile exports to the top two quota markets 58 4.3 Growth trends of knitted vs. woven apparel and total RMG exports of India 59 4.4 Indian export trends of selected products and overall for the RMG sector 60 5.1 Share of major markets for Nepal s RMG exports 84 5.2 Five major Nepali RMG items exported to the United States and European Union 85 5.3 Share of the United States and European Union in the total RMG exports of South Asian countries 86 5.4 Contribution of RMG sector to Nepal s total exports 86 5.5 Change in RMG exports in selected Asian countries following the MFA phaseout 89 5.6 Labor market rigidity in Nepal 90 5.7 Decomposition of value added in the RMG sector in selected countries 94 6.1 Quantity and value of monthly exports of men s and boys knit cotton shirts by selected country of origin to the United States 103 6.2 Export growth, value, and export share of the Pakistani RMG sector 105 6.3 Comparative cost structure in apparel production in selected countries (2001 2002) 110 6.4 The age distribution and median age of capital stock in Pakistan and Bangladesh in the RMG sector 113

Preface This book owes its genesis to a working paper by Hausmann and Rodrik (2003) on specialization in trade theory. The paper addressed an intriguing puzzle concerning why particular countries might choose to export particular commodities within their broad area of specialization. Thus, as they put it, within the broad readymade garment sector (RMG), why might Bangladesh specialize in producing hats and Pakistan in producing bedsheets? While the authors addressed this puzzle theoretically, interesting questions about the historical and microinstitutional field details that might complement theoretical answers remained, since economic trade theory is at a very high level of commodity aggregation. In pursuing this issue, the questions of what and why became incidental to, in our view, the more important question of how, once we started to explore the underlying processes during fieldwork. Shortly after reading this working paper, I moved to a visiting professor position at Mount Holyoke College, Massachusetts, and developed a seminar course South Asian Economic Development. Course development once again exposed me to the importance of the textile industry, particularly the garment sector, in the early export successes of low-income countries. I was also impressed with the quality of the research papers presented for the course by some of my students, a couple of them on the textile industry with a focus on the garment sector. It was during this first course offering that I met the five excellent students who later collaborated with me on the country studies: Diva Dhar on India, Mariam Navaid on Pakistan, Manisha Pradhananga on Nepal, Farah Siddique on Bangladesh, and Siyumii Yanthrawaduge on Sri Lanka. A chapter on history and background and another on importer s perspectives were afterthoughts, and I worked respectively with Ashima Singh and Courtney A. Van Cleve on these. I had developed a proposal for a field research study, but was advised by the Mount Holyoke s grants officer to first do a pilot project. Given the quality of student research and the students enthusiasm and energy, it

xiv Preface occurred to me that they might be the ideal research partners. They had the training, enthusiasm, country knowledge, and institutional support that more than made up for their lack of experience. I approached faculty members at the department, and they strongly supported the idea and encouraged me to apply for a faculty research grant. The Dean of the Faculty at Mount Holyoke College, Don O Shea, was also very encouraging and solicited a brief synopsis and budget. While the sum I asked for was modest, it was nonetheless much larger than a normal faculty research grant from the Research Committee at the college. Also, the funding solicited was for seniors, and the college did not normally fund senior research after graduation. Nonetheless, the Dean entertained the proposal and funding was secured for project fieldwork. This included air tickets to the five larger South Asian countries and modest field research expenses. The economics department at the college agreed to fund a symposium for the presentation of the country papers. The papers provided plenty of material for what has now become this book. I would like to acknowledge in particular Don O Shea for his flexibility and encouragement and Mount Holyoke College for financial support. I would also like to thank colleagues at the economics department for their encouragement, in particular Jens Christiansen, who has been a consistent and enthusiastic supporter, and Michael Robinson. I would also like to thank Gunseli Berik of the University of Utah for very helpful, detailed, and extensive comments, and the two anonymous reviewers of this book. This is the second book I have worked on with Anthony Wahl as an editor, and one could not ask for a better one, particularly in terms of thoughtfulness and quick feedback. I would like to thank Dawn Larder, senior administrative assistant of the economics department at Mount Holyoke College, for helping in various ways throughout the writing of this book. Finally, thanks to Diva Dhar for taking some excellent photographs during her fieldwork in India, one of which has been used for the cover.