The international garment trade was liberalized in 2005 following the termination of the Multifibre Arrangement (MFA) and ever since then, price competition has intensified. Employing a unique firm dataset collected by the authors, this paper examines the changes in the performance of Cambodian garment firms between 2002/03 and 2008/09. During the period concerned, frequent firm turnover led to a growth of the industry's productivity, and the study found that the average total-factor productivity (TFP) of new entrants was substantially higher than that of exiting firms. Furthermore, we observed that, thanks to productivity growth, an improvement in workers' welfare, including a rise in the relative wages of the low-skilled, was taking place. These industrial dynamics differ considerably from those indicated by the 'race to the bottom' argument as applied to labor-intensive industrialization in low-income countries.
It has been argued that poor productivity performance is one of the critical causes of stagnation in the African manufacturing sector, but firm-level empirical support is limited. Using original firm data from the garment industry, Kenyan and Bangladeshi firms were compared in terms of their technical efficiency and their contribution to competitiveness represented by unit costs. Our estimates indicate that there is no significant gap in the average technical efficiency of the two industries, although unit costs differ greatly between them. Higher unit costs in Kenyan firms mainly stem from high labor costs, while the impact of inefficiency is quite small. Productivity has little correlation with the stagnation of the garment industry in Kenya.
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