Magnitude of investment and global value chain: a case study of textile and clothing industry of Pakistan

Abstract

The objective of this study is to assess the impact of value addition chain and investment size on the sales revenue of export-oriented firms in Pakistan. Pakistan is severely facing the economic crisis because of its declining exports and growing external debt. The manufacturing of the intermediate products – yarn and fabric – belong to the capital-intensive industries. The large part of these products is exported to USA, China, European Union and Bangladesh. The importing partners convert these intermediate products into finished goods (garments, home textile, towel, etc.). Similarly, the finished goods which are produced by Pakistani companies and exported directly by the producers or small-scale brokerage houses do not have Pakistani brand names. The clothing sector companies in European Union and USA sale these products in super stores and retail shops under their brand names. This mechanism explains the distribution of benefits through the global value addition chain in textile and clothing industry. It is hypothesized in this study that sale revenues of textile manufacturing companies ares determined by the size of investment, type of products (stage of the integration), average lending rates, exchange rate in term of rupees per US dollar and the market access. Data for this analysis was extracted from the Annual Reports of the companies listed on Pakistan Stock Exchange. The data consists of 248 companies and 14 years (from 2003 to 2016). Through this panel data we quantified the impacts of the size of investment and the stage of value addition in textile chain on sales revenue. It is concluded that size of a company is a serious matter, while the total assets lead further increase in the sales revenue, however the negative sign with significant and robust parameters attached with the composite variable of the large companies’ category and value of its total assets reflects the decreasing rate of return on additional investment in large-scale companies. The devaluation of Pakistani currency has been positively affecting the sales of exporting sector companies. However, the lending rate of interest has not shown a significant impact.

keywords:

• downstream industries
• textile and clothing
• general system of preferences
• total assets
• SMEs
• panel data

JEL CLASSIFICATION:

• F14
• L25
• L67

Disclosure statement

No potential conflict of interest was reported by the authors.