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Financial Development and Textile Sector Competitiveness

Author

Listed:
  • Muhammad Nadim Hanif
  • Sabina Khurram Jafri

    (Muhammad Nadim Hanif (corresponding author) and Sabina Khurram Jafri are with the State Bank of Pakistan, I.I. Chundrigar Road, Karachi-74000, Pakistan. Email: nadeem.hanif@sbp.org.pk and Sabina.Kazmi@sbp.org.pk)

Abstract

Kletzer and Bardhan (1987) argue that countries with a relatively well-developed financial sector have a comparative advantage in industries that rely on external finance. Beck (2002) and Fanelli and Medhora (2002) find that well-developed financial sector translates into a comparative advantage in the production of manufactured goods. There has been no attempt so far to explore the relationship between the financial development and international trade competitiveness in the case of Pakistan. We construct Balassa's Revealed Comparative Advantage (RCA) index for textile sector of Pakistan. Using ratio of credit extended to the textile sector to the total non-government credit of the banking system (Textile Credit Share [TCS]) as proxy for external finance, we estimate long-run relationship and Error Correction Mechanisms (ECM) between RCA index and TCS while controlling for other determinants of the international trade competitiveness of textile sector of Pakistan. In line with the findings of Beck (2002) and Fanelli and Medhora (2002), our results suggest that recourse to external finance has a strong positive impact on the country's textile sector competitiveness both in the short and the long run, even when we control for traditional determinants of competitiveness.

Suggested Citation

  • Muhammad Nadim Hanif & Sabina Khurram Jafri, 2008. "Financial Development and Textile Sector Competitiveness," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 9(1), pages 141-158, June.
    • Handle: RePEc:sae:soueco:v:9:y:2008:i:1:p:141-158
    DOI: 10.1177/139156140700900106
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    References listed on IDEAS

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    1. repec:lje:journl:v:20:y:2015:i:1:p:157-168 is not listed on IDEAS
    2. Khurram Shahzad, 2015. "An RCA Analysis of Textiles and Clothing in Pakistan, India, and Bangladesh," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(1), pages 157-168, Jan-June.
    3. Shah Mehmood WAGAN, 2015. "Export boost of textile industry of Pakistan by availing EU’s GSP Plus," Journal of Economics Library, KSP Journals, vol. 2(1), pages 18-27, March.
    4. Hanif, M.N. & Husain, F. & Jafri, S., 2008. "Financial Sector Reforms and International Trade Competitiveness: A Case Study of Pakistan," MPRA Paper 36730, University Library of Munich, Germany, revised 31 Jan 2012.
    5. Wagan, Shah Mehmood, 2015. "Export boost of Textile Industry of Pakistan by availing EU’s GSP Plus," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(1), pages 18-27.
    6. Akmal, Nadeem & Akhtar, Waqar & Shah, Hassnain & Niazi, Muhammad Azam & Saleem, Tariq, 2014. "The Structure and Competitiveness of Pakistan’s Basmati Rice Exports," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society (AESS), vol. 4(04), pages 1-9, April.

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    More about this item

    Keywords

    JEL: F14; JEL: O16; Financial Development; Competitiveness;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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