Determinants of Exports of Textile Firms in Amritsar and Ludhiana in Wake of Phase-Out of ATC

Date01 October 2012
AuthorGian Kaur,Anjana Mehra
Published date01 October 2012
Subject MatterArticle
Determinants of Exports of Textile Firms
in Amritsar and Ludhiana in Wake of
Phase-Out of ATC
Anjana Mehra and Gian Kaur
This paper analyzes the determinants of exports of textiles of
Amritsar and Ludhiana in wake of phase-out of ATC. Panel
Regression models using log linear form have been estimated.
Effect of phasing-out of ATC or end of quota restrictions has
been analyzed on sample firms of both Amritsar and Ludhiana.
It is found that abolition of quota did not have significant impact
on exports of textiles in Amritsar and Ludhiana. However, when
the data were analyzed, the removal of quotas had significant
impact on the textile exports of both Amritsar and Ludhiana.
Also, the coefficient of location showed that firms located in
Amritsar were significantly different from Ludhiana.
Keywords: Export behaviour, Industry study, Amritsar and
Ludhiana textiles
JEL Classifiaction: C51, C22, L67
THE textiles industry is one of the significant manufacturing
industries of India. As an important sector of employment, it is
only second to Railways. Known globally for its skill and
craftsmanship, the Indian textiles industry accounts for about 4.2 per
cent of GDP, 20 per cent of manufacturing value added and one third
of total export earnings. (Economic Research Service, USDA).
The multifibre agreement (MFA) has governed international trade
in textiles and clothing since 1974. The MFA enabled developed
nations, mainly USA, European Union and Canada to restrict imports
from developing countries through a system of quotas. The Agreement
on Textiles and Clothing (ATC) to abolish MFA quotas marked a
significant turnaround in the global textiles trade. Under the ATC,
there was progressive phase-out of import quotas which were
established under the MFA, and the textiles and clothing was to be
integrated into the multilateral trading system before January 2005.
ATC is a transitory regime between the MFA and the integration
of trading in textiles and clothing in the multilateral trading system.
The ATC provided for a stage-wise integration process to be completed
within a period of ten years (1995-2004), divided into four stages
starting with the implementation of the agreement in 1995. The
product groups from which products were to be integrated at each
stage of integration included (i) tops and yarns, (ii) fabrics, (iii) made-
up textile products, and (iv) clothing.
The most important component of textiles industry in Punjab is
cotton and woollen textiles. The cotton textiles industry is complex
and varied in its structure, with the hand spun, hand woven sector at
one hand, and the spectrum and sophisticated capital intensive high
operation on the other. In textiles industry, handlooms, power looms
and automatic machines are used simultaneously by different units
in weaving process and it will be of interest to access the role of
technological progress in the textile goods industry in Punjab which
is one of the most important manufacturing centers of these goods in
The city of Amritsar has long been one of the biggest business and
commercial centers in the northern zone of India. Industries in
Amritsar play a significant role in the economy of the state. One of
the factors that have contributed to the growth of Amritsar as trading
center is that the city is the seat of Sikh religion. Thousands of pilgrims
visit Amritsar every year which is a boost to various industries.
Amritsar is famous for the manufacturing of fine pashmina shawls,
thick serge, silk goods and carpets. Besides the pashmina work,
Step Percentage of products to be brought
under GATT (including removal of quotas)
Step-1: 1 Jan. 1995 (to 31 Dec. 1997) 16 per cent (minimum, taking 1990 imports as base)
Step-2: 1 Jan. 1998 (to 31 Dec. 2001) 17 per cent
Step-3: 1 Jan. 2002 (to 31 Dec. 2004) 18 per cent
Step-4: 1 Jan. 2005 Full integration into 45 per cent (maximum)
GATT(and final elimination of quotas)
Source: WTO: Trading into Future, 1997; Banik, Cotton Textile Industry in India, 2000.

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