Firm dynamics in the Cambodian garment industry: firm turnover, productivity growth and wage profile under trade liberalization

Abstract

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.

Firm Efficiency in Cambodia's Garment Industry on the Eve of the Multi‐Fiber Arrangement Termination

“…However, as it turns out, Cambodia, along with other developing countries like Bangladesh, has survived the adverse price shocks, and emerged as a competitive garment exporter with relatively high profitability and the capacity to enter more developed markets (Bargawi, ; Hach, ; Yamagata, ). Even with an increasingly competitive market, Cambodia's garment industry has the capacity to expand without eroding workers’ welfare (Asuyama et al ., ).…”

“…However, as it turns out, Cambodia, along with other developing countries like Bangladesh, has survived the adverse price shocks, and emerged as a competitive garment exporter with relatively high profitability and the capacity to enter more developed markets (Bargawi, 2005;Hach, 2007;Yamagata, 2007). Even with an increasingly competitive market, Cambodia's garment industry has the capacity to expand without eroding workers' welfare (Asuyama et al, 2010). Nevertheless, with the increased competition in the post-MFA era, the Cambodian garment industry is vulnerable and will become increasingly less competitive in global markets due to the undersupply of infrastructure, lack of domestic backward linkage industries, labor unrest and corruption problems (Beresford, 2009;Natsuda et al, 2010).…”

The Impact of Advance Management Accounting Techniques on Performance : The Case of Malaysia

“…As we know exporting garments has been a first step for industrialization and economic growth for many low-income countries with abundant and inexpensive labour (see Asuyama, et al 2013). After the Second World War, East Asian Countries such as Honk Kong, Taiwan, South Korea and later, China and Vietnam, and other developing nations simultaneously developed the apparel sector by direct assistance from different countries like US and the European Union.…”

“…Nevertheless, from the mid-1970s to the mid-2000s, the global trading of textile and garment products was conducted under the terms of the Multi Fibre Agreement (MFA), which was eventually replaced, in 1995, by the Agreement on Textiles and Clothing (ATC), which was set to terminate from the trade agreement at the end of year 2004. The North American Free Trade Agreement (NAFTA) between the USA, Canada and Mexico was implemented in 1994, which Tsang and Au (2008) found in their study, and tariff was completely abolished from 2005 (see Beresford, 2009;Chorev, 2005;Islam & McPhail, 2011;Majumder & Begum, 2000;Asuyama, et al 2013). On April 15, 1994, after eight years of bitter and blatant negotiations and constant crises, representative of 108 countries met in Marrakesh, Morocco, and signed the Uruguay Round Agreements (Chorev, 2005).…”

“…In other research it was found that low exports benefited from the quotas imposed on the large exports. As a result of this, many developing nations like: Bangladesh, Cambodia, Pakistan, Sri-Lanka benefited from such facilities (see Asuyama, et al 2013& Beresford, 2009).…”