Foreign market access and competition in India's textile and clothing industries: Impacts on firms and workers

This study aims to understand how improved foreign market access and increased export competition affect firm- and industry-level sales and productivity, and how these in turn affect human resources.

We study this by focusing on the textiles and clothing (TC) industries in India, and analysing two important changes affecting the global TC industries during 1995-2005:

• The gradual dismantling of import quotas in the EU and US under the Multifibre Arrangement (MFA), which improved foreign market access by Indian firms.
• China’s accession to the WTO in 2001, which led to intensified competition for Indian exporters.

We will analyse how plants in India’s organized and unorganised TC sectors have been affected in terms of sales and prices, product composition, production technologies, wages, and workforce composition. As the TC sector is an important employer of low-skilled women, special attention will be paid to gender-specific wages and employment.

Our project contributes to the literature on firm-level effects of trade liberalisation by focusing on increased foreign market access for one particular low-wage sector, and by separately identifying the effect of increased Chinese competition in foreign markets. While empirical evidence on welfare effects of export opportunities has been accumulating, less is known about the effects of competition between low-wage exporters. Yet  “South-South” competition for jobs is intensifying with many developing countries seeking to stimulate industrial growth through foreign market access. Providing the first evidence on the effects of China’s global market integration in India will be an important contribution of this project.

Study design

Dismantling of the MFA meant that between 1995 and 2005, the EU and the US phased out import quotas on textile products, gradually extending the range of products that could enter their countries quota-free. When China joined the WTO in 2001, its products were also subject to these quota removals.

Based on firm and labour market surveys, the effects of these two real-world quasi-experiments are analysed, exploiting variation across the following three dimensions:

• Time: comparing years before and after quota removal;
• Products: comparing product groups with and without binding quotas;
• Chinese competition: distinguishing the effects of binding quota removals according to whether or not these quotas were also binding for Chinese exporters.