A Bacon of Hope? Another Look at the Italian Textile Industry

Despite increasing competition from newly industrializing countries, Italy’s textile industry has continued to be an important contributor to the domestic economy. Many observers attribute this resilience to the industry’s focus on quality. Here, we take note of that view but also examine production and cost relationships to explore the existence of returns to scale and the interrelationships among inputs to gain additional insights about the future prospects for this industry. The findings are consistent with constant returns to scale and a substitute relationship between all input pairs except for domestic capital and foreign intermediate goods. While the estimated cross elasticity values for the latter input pair suggested complementarity, they were not statistically significant. The results also suggested some increasing flexibility in the labor market, perhaps including informal sector arrangements, greater responsiveness of labor demand to the price of capital, and more international production sharing arrangements. An increasing elasticity over time of the demands for domestic capital and domestic intermediate goods with respect to the price of foreign substitutes was also observed. Maintaining the Italian textile industry’s reputation for outstanding quality may be an important survival strategy for some products; international production sharing may be necessary to maintain competitiveness for others.Italy, Textile Industry

NEW CHALLENGES FOR THE SOUTH AFRICAN TEXTILE AND APPAREL INDUSTRIES IN THE GLOBAL ECONOMY

The full integration of the textile industry into GATT, which with some exceptions occurred on January 1, 2005, is likely to greatly impact the global textile and apparel industries. In particular, one prediction is that the South African industries are likely to be ¡°decimated.¡± The actual effect on these industries will depend at least partly on the ability to take advantage of economies of scale and to be internationally competitive. In an endeavor to gain more insights into the future of these industries in South Africa, this study uses a cost function to investigate the presence of scale economies and the nature of input interrelationships. The findings include statistically significant economies of scale present in both industries and cross price elasticity estimates indicating that most inputs are substitutes for one another. The first result offers an opportunity to reduce unit costs if these industries can grow their markets. However, lower prices on imported intermediate goods will likely decrease the demand for domestic inputs. The cross price elasticities of demand are relatively low in some cases, consistent with domestic input market rigidities and international trade restrictions.South Africa, Textile Industry, Apparel Industry

The South African Textile Industry: Challenges and Opportunities

The full integration of the textile industry into GATT, which with some exceptions occurred on January 1, 2005, is likely to greatly impact the global textile and apparel industries. In particular,one prediction is that the South African industries are likely to be "decimated." The actual effect on these industries in an individual country will depend at least partly on the ability to take advantage of economies of scale and to be internationally competitive. In an endeavor to gain more insights into the future of these industries in South Africa, this study uses a cost function to investigate the presence of scale economies and the nature of input interrelationships. The findings include statistically significant economies of scale present in both industries and cross price elasticity estimates indicating that most inputs are substitutes for one another. The first result offers an opportunity to reduce unit costs, if these industries can grow their markets. However, lower prices on imported intermediate goods will likely decrease the demand for domestic inputs. The cross price elasticities of demand are relatively low in some cases, consistent with domestic input market rigidities and international trade restrictions. More recent data might bring findings of higher cross elasticities in the new international environment.South Africa, Textile Industry

NAFTA¡¯S IMPACT ON THE MEXICAN AUTOMOTIVE SECTOR

The findings discussed here are the outcome of continuing research on the Mexican automotive industry and include data for several years during which the NAFTA was in effect. Key results include strong evidence of constant returns to scale in both the automotive industry as a whole as well as the vehicle assembly industry and a finding that the period after NAFTA was implemented has been associated with lower production costs. In addition, these data support the conclusion that capital, labor, and foreign intermediate goods are all substitutes for one another, as are capital and domestic intermediate goods, but that labor and domestic intermediate goods are complements. While evidence was found to suggest some increased responsiveness in domestic markets to both foreign and domestic input prices, other results give reason for concern about continuing market impediments in Mexico.Mexico, Automotive Industry, NAFTA

A cost function analysis of the Mexican nonelectrical machinery industry

This paper investigates the existence of economies of scale in the Mexican nonelectrical machinery industry as well as the direct and cross price elasticities of demand for its inputs (capital, labour, and intermediate goods) by estimating a translog cost function. There is evidence that the industry exhibits economies of scale but that technological change has not significantly affected cost. Direct demand elasticities for the inputs are negative and less than one, but capital displays a higher price elasticity of demand than does labour or intermediate goods. In general, the input cross price elasticities indicate that they are substitutes. The results suggest that in the early years of the North American Free Trade Agreement, expansion of the industry may increase its competitiveness and generate some employment. The best near-term prospects for growth in the industry appear to be through foreign investment or joint ventures oriented toward both exports and the procurement activities of government and government-related entities in Mexico.

The Korean textile industry: still competitive, after all these years?

Although a vital part of the economy, the Korean textile industry has been challenged by the recent reduction of international trade barriers, particularly as this industry was fully integrated into General Agreement on Tariffs and Trade (GATT) in 2005. The textile industries in Japan and many other countries have also faced difficulties. This study examines future prospects for the Korean industry by investigating the presence of economies of scale and relationships among the inputs of domestic capital, labour and intermediate goods, as well as foreign intermediate goods. The findings are consistent with constant returns to scale and a substitutes relationship among all input pairs except for domestic capital and foreign intermediate goods. Thus, there appear to be no further cost reductions available through increased output and economies of scale. However, some reduction in industry output may not result in increased unit costs either. A reduction in the price of foreign intermediate goods will not only increase the demand for domestic capital, but also, at least in the short run, add stress to the industry as it decreases the demand for domestic labour and domestic intermediate goods.

Production and costs in the South African motor vehicle industry

This study investigates the existence of economies of scale in the South African motor vehicle industry as well as the substitution possibilities between input pairs and the direct and cross-price elasticities of demand for the various inputs. Because of data limitations, a translog cost function was estimated for only a three input model corresponding to a homogeneous production function involving capital, labour and intermediate goods. The issue of the existence of economies of scale in the South African motor vehicle industry is a particularly important one because South Africa once again is a member of GATT and a full participant in the international trade arena. The null hypothesis of constant returns to scale was rejected at the 0.5% level of significance. Thus, the results of this model are certainly consistent with economies of scale in the South African motor vehicle industry. The estimated direct price elasticities were consistent with the hypothesis that, during the past two decades, capital was the productive factor with the most elastic demand, and the estimated cross-elasticities between input pairs generally supported the hypothesis that all inputs are substitutes.

The demand for imports and economic reform in Spain

This study investigates the nature of the substitutability relationships among capital, labor, and imported inputs in the context of a production function for Spain, with estimates obtained from an aggregate cost function. The results are consistent with the hypothesis that all of the inputs are substitutes for one another. The findings with respect to domestic inputs and imports are particularly important as the internationalization of the Spanish economy continues since, in the short run and ceteris paribus, further removal of import restrictions may have a negative impact on the demand for domestic factors. The estimates obtained here are also consistent with the hypotheses that: a decrease in the price of imports will have a proportionately larger impact on the price of domestically-produced investment goods than on consumption goods; and second, that the elasticity of demand for each input with respect to consumption goods production is considerably higher than for investment goods production.Demand, Economic growth, Imports, International trade, Spain