The Spanish Textile Industry Sans ATC Quota Protection

Abstract

The Spanish textile and apparel manufacturing sectors have been badly impacted by the global recession as well as the removal of quotas that were in place with the Agreement on Textiles and Clothing (ATC). This study employs a cost function to investigate the presence of scale economies and the interrelationships among inputs of domestic capital, labor, and intermediate goods as well as outsourced (imported) intermediate products for the Spanish textile industry in a global environment that has become increasingly competitive. While there is evidence of scale economies at low output levels, there is also some evidence consistent with diseconomies of scale at the highest output levels. All of the inputs appear to be substitutes for one another except for domestic capital and outsourced intermediate goods. An important finding is that the demands for both labor and domestic intermediate goods have become increasingly sensitive to the prices of outsourced inputs. The estimated coefficients of dummy variables indicate that reduced international trade restrictions have put downward pressure on unit cost for the industry in recent years. These results suggest that the Spanish textile industry and its domestic suppliers will be increasingly challenged by international competitive pressures.

Keywords:

• Spain
• Textile Industry
• Globalization

JEL Classifications:

• D24
• F14
• L67

Acknowledgement

The authors gratefully acknowledge the helpful comments of two anonymous referees.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The agreement that admitted China to the WTO allowed the other members to place restrictions on all imports subject to the ATC until 2008, as well as a China-specific measure that was effective until 2013 (Ghori 2011; Liu and Sun 2004, 54). The United States determined that import surges in early 2005 were disrupting domestic markets and reimposed limits on imports of some Chinese textiles in April of that year (Federal Reserve Bank of Atlanta 2005, 13). Spain (and the European Union) also had an agreement with China to limit exports that was in effect from June 2005 until December 2007. Another provision covered all goods until 2012, but that provision apparently was not widely used. Moreover, the restrictions on Chinese imports apparently resulted in increased exports from other developing countries (Curran 2009; Madrid Emprende: Agencia de Desarrollo Económico 2008, 16).

2. The manufacture of basic metals and fabricated metal products; manufacture of food products, beverages, and tobacco; manufacture of rubber, plastics, and other nonmetallic products; manufacture of transport equipment; and electricity, gas, steam, and air conditioning supply are larger manufacturing sectors in terms of value added. See Instituto Nacional de Estadística, online data base, www.ine.es. The Spanish textile industry was apparently impacted years earlier when Spain became a part of the European Community and removed some tariff barriers to textile imports (Eusebio, Andreu, and Pilar López Belbeze 2007, 28). Nevertheless, according to the industrial production index for textiles, output increased in most years from 1975 until the 1990s, when it reached a peak value of 139.4 in 1998. The index fell steadily from a value of 135.2 in 2001 to 92.3 in 2007 (2005 = 100). See Instituto Nacional de Estadística, Anuario Estadístico de España, 1975–2009, and its online data base.

3. Truett and Truett (2014) investigated scale and input relationships in the apparel industry, where design and production and delivery time may be somewhat more important competitive factors than in the textile industry.

4. See Jorgenson (2000, Chapter 4), Greene (2000, 640–644), Berndt and Christensen (1973); Christensen, Jorgenson, and Lau (1973); and Guilkey, Lovell, and Sickles (1983, 615) for more detailed discussions of translog functions. Also see Binswanger (1974, 380); and Kohli (1991, 103–106) for a discussion of the technological change variable.

5. With the same models, but with the dummy variable omitted, the calculated values of E_C were less than one at the minimum output level, but greater than one at the mean and maximum output levels. However, in the models without the dummy variable, these calculated elasticity values were not significantly different from one except at the maximum output level, where they were significantly greater than one at the10% significance level for both models.

6. ‘Labor Reform Makes It Cheaper to Fire Workers.’ 2011. El País, English Edition with The International Herald Tribune, February 11, 1, 6.