The Rise of Bangladesh’s Textile Trade
1. Why was the shift to a free trade regime in the textile industry good for Bangladesh?
Employment and economic growth in Bangladesh depends upon exports of textile products which were allowed through a preferential quota system for textile market export from poor markets to rich markets. As soon as the shift to a free trade regime appeared along with the competition with countries such as China and Indonesia the quick collapse of Bangladesh’s textile industry has been predicted. However, the opposite occurred. We can highlight three major reasons to explain what happened:
* Labor costs are low, even lower than in China. Obviously low ...view middle of the document...
Customers also have benefits because prices are more affordable and retailers have benefits too in having better margins.
Highly developed countries such as America may have losses because outsourcing causes job losses, relocations, etc. Customers may also encounter some disadvantages in the quality of the product.
Ultimately, gains do outweigh losses because these low income countries are slowly developing and the standard of living is improving, such as in China where wage rates is growing. Moreover, even if the developed countries have losses it is inevitable if they want to provide product at a low price and allow customers to afford these products.
3. What international trade theory (or theories) best explain the rise of Bangladesh as a textile-exporting powerhouse?
In my opinion, the first international trade theory which explains the rise of Bangladesh as a textile-exporting powerhouse is the theory of comparative advantage. It is the ability of a country to produce a particular good or service at a lower marginal and opportunity cost. It refers to the specialization for a country in producing a certain kind of product because it can produce those more efficiently. In the case of Bangladesh we talk about the textile industry production at low labor costs.
Another theory we can talk about is the Porter’s theory of determinants of National competitive advantage (Porter’s Diamond). Porter in contradiction with the classical theories of international trade suggests that a country can...