The Determinants of Pakistan Exports of Textile: An IntegratedDemand and Supply Approach

The determinants of demand and supply of textile and clothingexports of Pakistan are examined for seven major trading partners (US,UK, Canada, Italy, France, Japan and Spain) over the period 1972 to2013. The simultaneous equation model is estimated by Generalised Methodof Moment to handle simultaneous equation bias and for consistent andmore precise estimates classical Empirical Bayes technique is applied.The results reveal that income of trading partners and devaluationpolicy has important and significant role in explaining exportsperformance of textile and clothing of Pakistan. As regards the supplyside, the relative prices and capacity variable are important indetermining the textile and clothing exports, however, the real wageshave significant but small effect on textile and clothing exportssupply. The removal of quantitative restrictions fails to provideincentives to the suppliers. The high income elasticity for the demandsuggests that focus should be on raising the factors which can help inexpansion of textile and clothing products in local market and markedcountries. Keywords: Textile and Clothing Exports of Pakistan,Simultaneous Equations, Real Effective Exchange Rate, Agreement onTextile and Clothing