Pakistan Journal of Social Sciences (PJSS)

Vol. 40, No. 3 (2020), pp. 1409-1416

The Economic Analysis of Comparative Advantage and

Competitiveness in the Textile Export Industry in Pakistan
Muhammad Shahid Maqbool
Department of Economics, Government Post Graduate College Gojra
Email: shahidmakbool@gmail.com

Muhammad Atiq-ur-Rehman
Assistant Professor, Higher Education Department,
Government of the Punjab, Lahore, Pakistan
Email: atiq164@live.com

Hafeez ur Rehman
Professor and Chairperson, Department of Economics,
University of Management and Technology, Lahore, Pakistan
Email: drhrehmankhan@gmail.com

Shafiq-ur-Rehman
Assistant Professor, Department of Economics
National College of Business Administration and Economics, Lahore, Pakistan
Email: qazishafiq5@gmail.com

Abstract:
The present study aims at measuring the export competitiveness of the
textile sector of Pakistan in the global market by employing several
indices of Revealed Comparative Advantage. The data on textile exports
of Pakistan have been taken from the international trade center (ITC)
UN-Comtrade statistics from 2003-2018. The findings of the analysis
exemplify that Pakistan’s textile exports had a comparative and
competitive advantage. Pakistan is the net exporter of textile products
and it has also a comparative advantage in the imports. Besides, the
results of the Revealed Trade Advantage index demonstrate that
Pakistan had a net comparative advantage in the concerned sector. The
study suggests that Pakistan should emphasize on the diversification of
the products, improving its supply chain, searching new markets for
selling products and use of modern technology to increase the trade
volume of textile products.

Keywords: Comparative Advantage; Comparative Cost; Gains from Trade;

Competitiveness

I. Introduction
Exports are considered to be a supplement of economic growth. An economy can
gain its goals of prosperity through trade and optimal allocation of available resources.
Following the principle of comparative advantage depend on their factor endowments, each
country is likely to produce and export those products which are less costly (Iqbal and
Khan, 2017). The trade returns depend on ensuring international standards, increasing
domestic production and investigating new markets for exports (Bernard and Schott, 2007
and Zada et al., 2011). Comparative advantage implies a greater return to one economy as
compared to others in the production of a product. It can be calculated by formulating the
1410 Pakistan Journal of Social Sciences Vol. 40, No. 3

relative pre-trade prices of the product in question; the calculation is accompanied by the
complexities (Mahmood and Hajji, 2009). The concept of revealed comparative advantage
used by Balassa (1965) is to analyze economies CA in specific products as well as the
patterns of CA for products over the period.

The textile sector of Pakistan is the leading manufacturing sector of the economy
as it contributes 8.5% to the GDP. Pakistan stands at the eighth largest textile exporter in
Asia. The export share of textile products is 58.5% of total exports witnessed a minor
growth of 0.10% and remained at 9.99 US$ billion in 2019 as compared to 9.98US$ during
the last year. Moreover, the textile sector employed 45 percent of the labour force while 38
percent of the manufacturing labour. Pakistan stands on the fourth position in the cotton
production and 3rd largest capacity of spinning in Asia after India and China. The textile
sector is one of the important sectors in terms of production, exports and employment in
the economy of Pakistan. This study aims to measure the competitiveness in the textile
exports of Pakistan during 2003-2018 by employing the Balassa, RSCA, Vollrath, revealed
trade advantage, revealed import advantage and net export indices.

II. Review of Literature

Clothing and textile are the necessities of the human being. Asia is the central
source of producing and providing the textile products to the USA, European Union and
other countries of the world. Pakistan is the leading exporter of textile products, especially
cotton textile products. The policy analysis matrix was employed by Jawed et al. (2006) to
scrutinize the CA of cotton production in Pakistan and concluded that the farmers of Punjab
had a CA in cotton production during analysis. The RCA index was utilized by Hanif and
Jafri (2008) to examine the export competitiveness and performance of Pakistan’s textile
sector. The findings highlight that external finance altered the competitiveness of
concerned sector, both in the short and long run. Khan and Mehreen (2010) and Shah et al.
(2012) investigated the problems of textile industry of Pakistan and the result of these
studies indicated that Pakistan faced such problems like yarn prices, an energy crisis,
electricity crises, devaluation, law and order circumstances, research and development and
lack of modern technology. Remeikienė and Startienėa (2013) measured the comparative
advantage and competitiveness of revealed comparative advantage of Lithuanian industrial
sector in the world markets by employing RCA and RSCA from 2007-2011. The
comparative advantage of textile sector of four countries with the US and EU-15 economies
is measured by Yilmaz and Karaalp (2013) by utilizing Balaasa index during 2000-2010.

The competitiveness of textile and clothing sector was examined by Ahmad and
Kalim (2013 and 2014) by employing Johansen co-integration test and RCA method. The
results demonstrate that Pakistan had a high CA in the textile export and low CA in the
clothing. Takala and Kazmi (2014) measured the competitiveness of the textile
manufacturing sector of Pakistan with the global manufacturing of textile sector. The
competitiveness of the textile and clothing exports of Pakistan, India and Bangladesh was
measured by Shahzad (2015) by employing RCA index. The study concluded that Pakistan
had a CA in textile, Bangladesh had CA in clothing and India had a comparative
disadvantage in textile sector in the selected time span. Wadho and Chaudhry (2016)
examined the innovations in the Pakistan’s textile sector by using 431 textile industries and
findings demonstrate that 56% firms introduced innovations, while 38% firms introduced
new commodities. The determinants of export competitiveness of Pakistan were examined
by Irshad and Xin (2017) by utilizing revealed comparative advantage index from 2003-
 1411
2015. The findings exemplified that Pakistan is not a foremost trading partner in global
trade. Further, it was observed that Pakistan had a CA in textile and clothing, hides and
skins and vegetable during the selected time. Similarly, the same method was employed by
Gupta and Khan (2017) to measure the textile export competitiveness of India as compared
to twelve major exporters of textile in international market. The RCA, MCA and CAC
indices were employed by Kim (2019) to examine the competitiveness in the export of
textile and clothing sector of India from 1991-2017 and concluded that India had a CA.
The aim of the current study is to measure the competitiveness and export performance of
Pakistan’s textile sector. This study employs Revealed comparative advantage index,
Revealed symmetric comparative advantage index, InRCA, Vollrath index (RCA#),
Revealed import advantage index, Revealed trade advantage index and Net export index to
scrutinize the export competitiveness of textile sector. Earlier researchers employed
different methods to measure the export competitiveness of textile sector of Pakistan, but
no study was utilized these indices to examine the competitiveness.

III. Methods and Material

The data were collected from the International trade center for Pakistan’s textile
product groups 61, 62 and 63 during 2003-2018. Liesner (1958) was the first who
introduced the revealed comparative advantage index and Balassa (1965) operationalized
it to examine the CA of the product (Balassa, 1965). The RCA index of exports has been
explained as the ratio of an economy’s export in a particular product category to its share
in total merchandise exports (Balassa and Marcus, 1989).
Xti
⁄ t
∑ Xi
RCA= w
Xi
(Source: Erkan and Kazim, 2014)
⁄ w
∑ Xi

Where, Xit =Textile exports of Pakistan, ∑ Xit = Pakistan’s total exports,

Xiw = Global textile exports and ∑ X w
i =Total exports of the world.

The value of Balassa index varies between zero and infinity, whereas zero
indicates zero exports in the selected industry and infinity elaborates that the selected
industry is a major exporter as compared to the other industries of the country. The value
of RCA index greater than 1 indicates the comparative advantage, or in Balassa’s
terminology, a revealed comparative advantage (Rivlin, 2000). This study employs
logarithms to the Balassa index and InRCA>0 reveals CA, while LnRCA<0 indicating
comparative disadvantage (Faustino, 2008). To suppress the problem of skewness,
revealed symmetric comparative advantage index is utilized. The RSCA index is explained
as:

RCA−1
RSCA = (Source: Erkan and Kazim, 2014)
RCA+1

This index lies between 1 and -1 and avoid the problem with zero values which
occur in the transformation of logarithms (Erkan and Sarıcoban, 2014).The study utilized
revealed import advantage (RMA) index to measure the CA in the imports of the economy.
The RMA is expressed as
1412 Pakistan Journal of Social Sciences Vol. 40, No. 3

Mti
⁄
∑ Mti
RMA= Mw
(Source: Erkan and Kazim, 2014)
i ⁄
∑ Mwi
Where, Mit = Textile imports of Pakistan, ∑ Mit = Pakistan’s total imports, Miw =
Textile imports of the world and ∑ Miw = Total imports of the world. The study measured
revealed trade advantage index (RTA) which is explained as the difference between RCA
and RMA.
Xti Mti
⁄ t ⁄
∑ Xi ∑ Mti
RTA= RCA-RMA= w
Xi
- w
Mi
(Source: Erkan and Kazim, 2014)
⁄ w ⁄
∑ Xi ∑ Mwi

Vollrath (1991) introduced the index for CA, and it is considered to be a better
measure of competitiveness because this index eliminates the problem of double-counting
in global trade (Gnidchenko and Salnikov, 2015). The Vollrath index is explained as

Wij
{ }
(∑i Wij )−Wij
RCA# = (∑j Wij )−Wij
(Source: Topcu and Sarigul, 2015)
{ }
[(∑j ∑i Wij )−(∑j Wij )]−[(∑i Wij )−Wij ]

Where, Wij= Pakistan’s textile exports, ∑i Wij = Pakistan’s total exports, ∑j Wij = World’s
textile exports and ∑j ∑i Wij = World’s total exports. The study also utilizes net export index
(NEI) to measure the competitiveness which is examined as the net exports divided by the
sum of imports and exports of textile of Pakistan (Balassa and Noland, 1989). This index
is utilized to describe the specialization of the concerned economy in the exports (as net-
exporter) or in the imports (as net-importer). The absolute values of this index examine the
share of inter-industry trade of textile in the world economy, while (1-|NEI|) highlights
intra-industry trade (Vixathep, 2011). The net export index is defined as follows where M
refers to imports.

NEI = (Xij-Mij)/(Xij+Mij)

IV. Results and Discussion

Table 1 illustrates the growth of Pakistan’s textile import and export sectors
during 2003-18. A positive growth rate exists due to high prices of inputs along with the
record high exports to US economy. During 2007, the economy of Pakistan went through
economic instability due to political instability and depraved law and order situation. In
2008-09, the negative growth rate was observed due to the effects of global financial crises
and flimsy international financial markets.

This study utilized a set of revealed comparative advantage indices to measure the
competitiveness and comparative advantage of textile sector of Pakistan from 2003-18.
Figure 1 represents the trend of revealed comparative advantage indices during the selected
time period. In Table 2, the findings highlight that Pakistan’s textile export sector had a
higher CA from 2003-18, because the RCA index values is greater than 4. Net export index
describes that Pakistan is the net exporter of the textile sector (Hanif and Jafri, 2008 and
Ahmad and Kalim, 2014). Moreover, the results also illustrate that the portion of inter-
industry and intra-industry trade relative to the global trade of textile exports of Pakistan.
 1413
The positive values of InRCA and RSCA reveal the CA in the exports of textile. The high
competitive advantage was also seen in the textile sector by utilizing Vollrath index (Irshad
and Xin, 2017). Pakistan had a competitive advantage in the imports of textile because the
RMA index is less than 1. It means that Pakistan not only exports but also imports these
selected textile products during above mentioned time span. The positive value of RTA
index describes that Pakistan had a net comparative advantage in the textile sector.

Table 1: Export and import growth in the textile sector of Pakistan during 2003-18
(Billions US $)
Percentage Percentage Percentage Percentage
Years TEOP Change TEOW Change TEP Change TIOP Change
2003 4.709 - 248.16 - 16.05 - 0.0547 -
2004 4.750 0.856 278.31 12.147 12.585 -21.59 0.0528 -3.53
2005 6.056 27.49 303.16 8.9286 16.05 27.53 0.0906 71.66
2006 6.493 7.225 340.07 12.176 16.933 5.4994 0.1104 21.78
2007 6.402 -1.41 382.76 12.554 17.838 5.3478 0.145 31.37
2008 6.395 -0.1 405.81 6.0204 20.279 13.682 0.1653 14.03
2009 5.805 -9.23 358.7 -11.61 17.555 -13.43 0.161 -2.63
2010 6.729 15.91 396.15 10.44 21.413 21.979 0.239 48.48
2011 7.584 12.71 463.42 16.981 25.344 18.356 0.258 7.949
2012 6.986 -7.88 460.69 -0.589 24.614 -2.881 0.248 -3.89
2013 7.646 9.443 500.96 8.7409 25.121 2.0607 0.2454 -1.03
2014 8.294 8.475 537.55 7.3053 24.722 -1.587 0.297 20.99
2015 8.247 -0.57 500.02 -6.982 22.089 -10.65 0.3665 23.42
2016 8.404 1.912 491.2 -1.764 20.534 -7.041 0.3978 8.543
2017 8.937 6.337 514.94 4.8327 21.878 6.5453 0.4027 1.232
2018 9.496 6.254 547.3 6.2841 23.631 8.0132 0.4532 12.54
Sources; Authors own calculations based on ITC. Where, TEOP= Textile export of Pakistan, TEOW= Textile
export of World, TEP= Total export of Pakistan and TIP= Textile Import of Pakistan.

Table 2: The Revealed Comparative Advantage of Pakistan’s textile in world scale

Years RCA RSCA LNRCA RCA# RMA RTA |NEI| 1- |NEI|
2003 8.851 0.797 2.181 12.327 0.122 8.73 0.977 0.023
2004 12.340 0.850 2.513 19.530 0.108 12.23 0.978 0.022
2005 12.870 0.856 2.555 20.449 0.121 12.75 0.971 0.029
2006 13.482 0.862 2.601 21.639 0.132 13.35 0.967 0.033
2007 12.969 0.857 2.563 19.985 0.167 12.80 0.956 0.044
2008 12.417 0.851 2.519 17.943 0.158 12.26 0.950 0.050
2009 11.384 0.838 2.432 16.769 0.176 11.21 0.946 0.054
2010 11.970 0.846 2.482 17.273 0.248 11.72 0.931 0.069
2011 11.674 0.842 2.457 16.485 0.240 11.43 0.934 0.066
2012 11.326 0.838 2.427 15.640 0.245 11.08 0.931 0.069
2013 11.534 0.840 2.445 16.378 0.239 11.30 0.938 0.062
2014 11.846 0.844 2.472 17.577 0.254 11.59 0.931 0.069
2015 12.324 0.850 2.512 19.374 0.309 12.02 0.915 0.085
2016 13.343 0.861 2.591 22.259 0.309 13.03 0.910 0.090
2017 13.820 0.865 2.626 23.056 0.267 13.55 0.914 0.086
2018 14.118 0.868 2.647 23.317 0.294 13.82 0.909 0.091
Source: Author's own calculations

Figure 1: Revealed comparative advantage indices from 2003-18

1414 Pakistan Journal of Social Sciences Vol. 40, No. 3

V. Conclusion
The primary purpose of this study is to measure the export competitiveness of
Pakistan’s textile sector in the global markets by utilizing several indices of revealed
comparative advantage. Using data that collected from UN-Comtrade statistics from 2003-
2018, the results of the RCA, RSCA, LnRCA and RCA# indices illustrate that Pakistan
enjoyed comparative and competitive advantage over the period under consideration. The
results of net export index highlights that Pakistan is the net exporter of this sector.

The results also exemplify the portion of inter-industry and intra-industry trade
relative to the global trade of textile exports from Pakistan. The index of RMA describes
that Pakistan also had a CA in the textile imports. The RTA index also shows that Pakistan
is the net-exporter of textile products. It is suggested that Pakistan should focus on the
product diversification and supply chain upgradation. The country should also maximize
the value-addition to enhance its export revenues. Moreover, a research intensive and
innovative production along with modern technology can upsurge the textile exports of
Pakistan.

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