Proceedings of 11th Asian Business Research Conference
26-27 December, 2014, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-68-9
Modelling International Trade in Ready Made Garments:
Gravity Model Analysis
Hazera Akter*
International trade in Ready Made Garments (RMG) consists of import and export
of the articles of apparel accessories both knitwear and woven items throughout the
different countries of the world. According to the trade statistics of 2013, China is the
largest exporter of RMG to the world holding 38.57 percent volume of world RMG
export; followed by Bangladesh exporting 6.10 percent and then Italy exporting 5.05
percent. United States of America is the largest importer of RMG from the world
holding 20.79 percent volume of world RMG import; followed by Germany importing
8.81 percent and then Japan importing 7.88 percent. Such international trade in RMG
among these trading partners is subject to an increasing competitive picture implied in
the international markets. There may have enormous factors facilitating each
competing countries in the international RMG trade. This study is intended to find out
the factors influencing the pattern of international RMG trade and develop an
econometric model utilizing the extended form of Gravity Model based on the
identified factors.
Given the multiplicative nature of the gravity equation, a panel data with the
largest 10 exporters of RMG and each of their 6 importing countries around the world
emphasizing volume of import from 2001 to 2013 was set up to estimate the gravity
model subject to some diagnostic tests. A linear regression is run taking dependent
variable ‘log of import volume by the importing country from the identified exporting
country’ over the independent variables: ‘log of distance between exporting and
importing countries’, ‘log of Gross Domestic Product(GDP) of exporting country’, ‘log
of GDP of importing country’, ‘log of population of importing country’, ‘log of population
of exporting country’ and 8 dummy variables for having sea route, similar region,
similar time zone, common border, common currency, common language, involvement
through Regional Trade Agreements (RTAs) and entitlement to duty free facility.
In the regression results, distance is found influencing international RMG trade
negatively having the coefficient of -0.30 percent. The GDP of both the exporting and
importing country contributes to increasing international trade in RMG whereas
importing country’s GDP carries more value (0.79 percent increase against 1 percent
increase in trade). The exporting countries are found to gain more from the lower
populated importing nation such as European countries and for being larger populated
exporting countries. Under dummy variables: where the trading partners have sea
connection, common currency, common language and RTAs, they were found
negatively correlated in RMG trade. On the other hand, variables: being in similar
region, having common border, similar time zone and having duty free facility
contribute to raising international trade in RMG among the trading partners. The study
has an important implication such as guiding the policy makers in understanding the
pattern of international trade in RMG which ultimately drives the development of
appropriate national strategies for being more competitive in international RMG
market.
Field of Research: Economics
th
*Research Associate, Bangladesh Foreign Trade Institute, TCB Bhaban (5 Floor), 1 Karwan Bazar,
Dhaka 1215, Bangladesh. Email: lubna17391@yahoo.com Telephone: +88 02 55013424-6, Fax: +88 02
55013427