Abstract
In the textile industry and international trade, the main discussion centers on the exchange of goods; since a country is not able to meet all of its needs and requirements through domestic production, countries are therefore compelled to engage in international trade. One of the important informational axes for economic planning, especially industrial investment in developing countries, is awareness of comparative advantages in the production and export of goods. Awareness of the comparative advantages of foreign trade and efforts to actualize them in order to succeed and be present in the arena of international competition appear to be necessary. Iran’s textile and apparel industry, by benefiting from a long history, the volume of investment, a high value-added rate, backward and forward linkages with other industries and the national economy, and abundant human resources, has many potential capacities for progress and quantitative and qualitative upgrading of itself and the national economy. In this research, which was conducted using a documentary and applied method, changes in the comparative advantage of Iran’s textile industry relative to competitors and its role in international trade were examined. The results showed that, in general, in many economic sectors, Iran is losing its comparative advantage in global markets. It is necessary for the government and economic policymakers, taking this issue into account, to correctly identify export priorities and, based on that, to pursue the strengthening and support of production in sectors that have an advantage, and in addition to having an advantage, this criterion should also have sustainability.
Keywords: International trade, textile industry, trade development, comparative advantage
Introduction
International trade in the world has a long history, and nations have long engaged in foreign exchange in order to meet needs and obtain goods and services from other countries. In the past, meeting society’s needs and profit-seeking were considered among the main motives of countries for entering the sphere of international commerce, but today other important political and economic goals are also مطرح in this domain. Some economists believe that opening countries’ borders to one another and expanding cross-border transactions has directed nations’ economic resources toward activities with higher productivity and has accelerated their growth and development process (Torkamani, 1391).
In international trade, two groups play a fundamental role; the first group consists of the regulators of relations and trade policy between countries and guides matters such as exports and imports and customs affairs and tariffs and taxes. In this group, governments, international organizations and unions, and global institutions (such as the World Trade Organization, UNCITRAL, UNIDROIT, the International Chamber of Commerce) are active. The other group, through international contracts, is the agent that carries out trade. Merchants, trading companies, contractors and builders of factories in other countries, and explorers of mines and their extractors are examples of this.
In international trade, the main discussion is on the exchange of goods; since a country is not able to meet all its needs and requirements through domestic production, countries are therefore compelled to engage in international trade (Mahmoudzadeh, 1392).
One of the important informational axes for economic planning, especially industrial investment in developing countries, is awareness of comparative advantages in production and export of goods. Awareness of the comparative advantages of foreign trade and efforts to actualize them in order to succeed and be present in the arena of international competition appear necessary (Hassanzadeh, 1377).
Theory of Absolute Advantage
Based on Smith’s theory, each country, through free trade, can specialize in producing goods that it produces more efficiently than other nations (it has an absolute advantage in producing them) and, in return, import goods that it produces less efficiently (in which it lacks an absolute advantage). The specialization that factors of production acquire at the international level leads to an increase in world production, and its benefits are distributed among the nations party to trade.
Therefore, by rejecting the viewpoint of mercantilists, he believed that in free trade based on absolute advantage, one country does not benefit to the detriment of other nations; rather, all countries will benefit simultaneously (Poursardar, 1399).
Theory of Comparative Advantage
The concept of comparative advantage, in the evolution of Adam Smith’s theory of absolute advantage, was first used in the field of international trade, such that David Ricardo, in his writings in the nineteenth century AD, concludes in this way that the benefit of each country lies in specializing in producing and offering goods and services in which it is best in terms of relative prices, and by exchanging its surplus with other countries, meeting its need for other goods and services.
Nations that try to be self-sufficient in fact spread a kind of poverty among their people, because by producing goods in which they are not the best, they sell that good to their people at a price higher than the price that other countries could have offered; whereas they could, by leaving their people free to produce goods in which they are the best, obtain the maximum productivity and profit for them.
Research Significance
In the world’s economic systems regarding production, three important questions must be answered:
What goods should we produce? (what type of product and service)
To what extent should we produce? (market volume)
How and with what technology should we produce?
To answer the first question, the production chain needs to be reviewed. In this process, it becomes مشخص which of the products has higher value added so that the type of product is determined. The industrial development of each country and the extent to which different industries benefit from the advantages of international trade depend on the characteristics of each country, including the status of economic infrastructures, actual and potential comparative advantages, and the competitive environment governing industrial and commercial activities (Fathi, 1396).
Iran’s textile and apparel industry, benefiting from a long history, the volume of investment, a high value-added rate, backward and forward linkages with other industries and the national economy, and abundant human resources, has many potential capacities for progress and quantitative and qualitative upgrading of itself and the national economy (Shafie, 1399). Therefore, determining whether this industry enjoys comparative advantage for entering global markets is increasingly felt.
3. Research method
This study adopts an applied and documentary research approach, relying primarily on the collection and analysis of library-based sources. The objective is to evaluate the comparative advantage of Iran’s textile and apparel industry and to determine its investment value and potential for expansion in international trade.
Literature Review
Yazdani and colleagues (1400) examined and analyzed the level of competitiveness of the agricultural, industrial, and service subsectors of Iran’s economy in global markets by considering four revealed comparative advantage (RCA) indices at the level of two- and four-digit codes of the International Standard Industrial Classification of All Economic Activities (ISIC), and by using information from Iran and world input–output tables during the period 95-1375. This research showed that in many economic sectors, Iran is losing its comparative advantage in global markets. It is necessary for the government and economic policymakers, taking this issue into account, to correctly identify export priorities and, based on that, to pursue the strengthening and support of production in sectors that have an advantage, and in addition to having an advantage, this criterion should also have sustainability.
Ghasemlou and colleagues (1398) examined comparative advantage and the stability of the performance of industrial goods in Iran’s provinces. Identifying the comparative advantage of capable industrial regions and directing guidance toward investment in the industries of those regions can be effective in developing non-oil exports. The results from examining revealed comparative advantage and Balassa’s symmetric measure showed that the provinces of Isfahan, Markazi, Qazvin, Bushehr, Hormozgan, Semnan, East Azerbaijan, Yazd, Khuzestan, Kohgiluyeh and Boyer-Ahmad, Khuzestan, Zanjan, Qom, and Kerman, respectively, enjoy revealed and symmetric comparative advantage. These provinces, in addition to being self-sufficient, export their industrial goods to other provinces and abroad.
Also, the findings obtained from estimating the group convergence method showed that for all provinces the specialization coefficient was equal to 33/1 and is greater than one; but out of 28 provinces studied, 14 provinces with a specialization coefficient above one (75/1) were industrial and 14 other provinces with a specialization coefficient less than one (99/0) were non-industrial. Based on these results, the level of specialization and the amount of comparative advantage of industrial provinces not only had the necessary stability but also strengthened over the period. In contrast, the level of specialization and the amount of comparative advantage of non-industrial provinces were not stable and, relatively, the specialization of these provinces compared with industrial provinces weakened.
Fathi and colleagues (1396) examined comparative advantages and the readiness of Iran’s factory industries for competitive conditions of free trade and accession to the World Trade Organization (WTO). The results of the study indicate that in addition to traditional comparative advantages based on natural resources, a part of other factory industries of the country, such as the production of jewelry, office and computing machinery, auto parts, pharmaceuticals and chemical materials used in medicine, optical instruments and photographic equipment, the production of metallurgical machinery – metal smelting, motor vehicles, and … also—under the constancy of other conditions—have potential readiness to face competitive conditions of free trade, and accession to the WTO can be considered an opportunity for these industries.
Nazemian and Moahhedmanesh (2015) conducted a study examining intra-industry trade and its relationship with the revealed comparative advantage of Iran’s economy over the period 1997–2006. The findings indicated a relatively low volume of Iran’s bilateral intra-industry trade with global markets. Moreover, the model estimation results revealed a positive and statistically significant relationship between intra-industry trade and the revealed comparative advantage within the Iranian economy.
Azizi and Mojtabaei (1387) in this article examined comparative advantage in production and trade and its continuity in Iran’s textile economy in order to increase efficiency in superior quantity and quality of production and trade. In general, the main objective of this research was to measure the competitive capacity of the country’s textile industry in the international arena. In this research, to measure comparative advantage in the country’s textile industry, the criteria of Domestic Resource Cost (DRC) and Revealed Comparative Advantage (RCA) were used for the products of cotton, warp-and-weft fabrics, synthetic fiber yarns, wool and animal hair, and silk during the years 1383-1379.
Using the revealed comparative advantage method and the data related to the years 1383-1379, it was determined that Iran’s textile industry in the year 1383 does not have revealed comparative advantage, and among the products examined only two products, synthetic fibers and wool and animal hair, have comparative advantage. It was also determined that in Iran’s textile industry not only did the revealed comparative advantage of textiles decrease in 1383, but also the comparative advantage of the products examined—except synthetic fibers—decreased in 1383 compared to 1382. In addition, in this research, the revealed comparative advantage of Iran’s textile industry in 1383 was compared with selected countries, which shows that Iran among prominent countries with rank 44 and 91/0=RCA is not in a good position.
Nemati and colleagues (1385) measured potential comparative advantages of the activities of the textile industry of Ilam province. This research examined and measured the potential comparative advantages of the industrial activities of 13 important units of the textile industries with 23 different textile and apparel products in Ilam province in the years 1380 and 1381 in line with the development of non-oil exports. The analysis was carried out within the framework of the Domestic Resource Cost (DRC) method based on cost accounting in order to determine the differences of each company and their products separately. The results showed that most of the goods studied had high comparative advantage, such that in the years 1380 and 1381 the number of goods with high comparative advantage, respectively, amounted to 15 and 17 goods out of 23 items. Among the reasons for the high comparative advantage of these units, the low production costs and private ownership of these units can be mentioned. Reducing and/or controlling production costs, mass production, and expanding domestic and international markets can increase the role of these units in increasing the province’s non-oil exports.
Manjazeb (1381) calculated the comparative advantage of Iran’s food industries and apparel industries. The results showed that despite the increase in global demand for most products of the apparel industries in the world—except in two cases—Iran has not achieved much success, and during 97-1993 Iran’s comparative advantage has been decreasing.
Mbatha (2021) in a study examined threats and opportunities of competitive advantage in the South African clothing, textiles, leather and footwear industry (CTLF). Research showed that despite the decline in employment and competitive advantage experienced in recent years, South Africa’s clothing, textiles, leather and footwear industry (SACTLF) still has a significant share in the manufacturing sector of this country. To restore employment figures last seen a decade ago in the industry, SACTLF should examine threats and opportunities of competitive advantage among other matters. To discover threats and opportunities of competitive advantage in the SACTLF industry, one leading SACTLF retail group and two leading apparel manufacturing associations (representing more than 100 CTLF organizations) were purposively sampled and interviewed. The result is that a low rate of innovation and lack of access to production inputs are the main threats to competitive advantage. Strengthening quick response time and localization emerged as beneficial competitive opportunities. The findings of this article show that the SACTLF industry has the potential to create competitive advantage.
Ervan (2019) in a study examined comparative advantage and trade specialization of East Asian countries: do East Asian countries specialize in producing products with high comparative advantage? This article concludes that during the study periods 1995, 2005, and 2015, East Asian countries (Indonesia, China, Japan, Hong Kong, South Korea, and Singapore) specialize in product groups with low comparative advantage. It was also found that the dominant product classification regarding comparative advantage and trade specialization of East Asian countries is the technology-based product classification.
Lectard (2018) in a research examined whether developing countries can benefit from fighting comparative advantage. Distance to comparative advantage, export diversification and complexity, and the dynamics of specialization were studied. This research showed that developing countries that challenge their comparative advantage tend to export more manufactured items and more complex manufactured goods. Regarding export diversification, its effect is heterogeneous across development levels: although ignoring comparative advantage seems to help diversify export baskets of middle-income and resource-rich countries, it tends to concentrate the baskets of low-income economies. In addition, the effect of distance to comparative advantage on productive transformation is strongly conditioned by the size of FDI shares and the country’s specialization in low value-added tasks of global value chains (GVC). In particular, the results show that defying comparative advantage while attracting foreign direct investment may be a risky strategy in the long run, because it leads only to partial and artificial industrialization, with manufactured exports increasing while manufacturing value added in fact decreases.
Schetter (2017) in a study examined quality differentiation, comparative advantage, and international specialization among products. The results stated that quality differentiation allows industrial countries to be active across complex and simple products, while developing countries systematically specialize in simple products, in line with the realities of the new style. Therefore, quality differentiation may help explain why richer countries tend to be more diversified and why, over time, rich and poor countries increasingly tend to export similar products. Quality differentiation indicates that the gains from inter-product trade accrue more to developing countries.
Al-Wadud (2008) compared international dynamic comparative advantage in textiles and apparel trade, estimates and implications. The results of this research showed that developing countries have comparative advantage superiority in both the textile and apparel industries. However, their comparative advantage in apparel is superior compared to textiles.
Obstacles to the Decline of Comparative Advantage in Iran’s Textile and Apparel Industry
Smuggling of textiles into the country
Inability to provide raw materials with desirable quality and low price
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Delayed Disbursement of Export Subsidies
Higher final cost of products compared to similar foreign goods
Obsolescence of production machinery in a number of production units
Adopting variable tariff policies for export and import of goods
Weakness of production laws and regulations in the country
Domestic recession and disorder of the business environment
Lack of advanced knowledge and weakness of technology
Low level of existing human resources in terms of skills and required specializations, mainly in the sections of management, technical, design, spinning, finishing, and sales
Traditional nature of textile activities, low efficiency of machinery, and their mechanization coefficient
Weakness of hardware and software infrastructure (transportation, maintenance and storage, packaging, marketing, etc.) (Hemati, 1401)
Conclusion
One of the factors effective in recognizing a country’s export capabilities for adopting appropriate policies in that direction is the existence of comparative advantage in the production and export of goods. Simply, it is believed that countries have entered the arena of foreign trade due to the existence of comparative advantage in producing goods and exchange goods at the international level (Abolghasem, 1383).
According to the studies conducted, although Iran’s textile industry in the years 1381-1382 had a high comparative advantage in this field, unfortunately multiple factors have caused that not only did the revealed comparative advantage of textiles decrease in 1383, but also the comparative advantage of the products examined—except synthetic fibers—decreased in 1383 compared to 1382. The comparison of the revealed comparative advantage of Iran’s textile industry in 1383 with selected countries shows that Iran among prominent countries with rank 44 and 91/0=RCA is not in a good position (Azizi, 1387).
In general, in many economic sectors, Iran is losing its comparative advantage in global markets. It is necessary for the government and economic policymakers, taking this issue into account, to correctly identify export priorities and, based on that, to pursue the strengthening and support of production in sectors that have an advantage, and in addition to having an advantage, this criterion should also have sustainability.
Meanwhile, due to being labor-intensive and not having too much complexity, the textile industry can more easily absorb and activate the inactive population of the country compared to other industries. This is while this industry has a greater chance for development and success in the global arena and connection to the global value chain compared to industries such as petrochemicals and automobile manufacturing. Widespread smuggling of clothing and fabric from countries such as China, Turkey, the UAE, Thailand, and others has put the country’s textile industries into crisis (Kashi, 1392).
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Al-Wadud, Mokhtar; Translator: Mahdi-pour Tamali, Fatemeh; Commercial Studies, Farvardin and Ordibehesht 1386 – Issue 22, Scientific-Promotional Rank (Ministry of Science/ISC), 10 pages – from 109 to …
