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Jan Vincent Realisan INBUSIN Assignment no.

2 May 28, 2019

1. Why was the shift to a free trade regime in the textile industry good for Bangladesh?

Economic growth of the country and employment in Bangladesh depended upon textile
products exports which were allowed through a preferential quota system for textile market
export from poor markets to rich markets. When free trade regime appeared, competition with
countries such as China and Indonesia also started, and many predicted a quick collapse of
Bangladesh’s textile industry. However, the opposite occurred. There are three major reasons to
explain this: 1. Low Labor costs compared to even China and Indonesia. This was possible
through investments by textile manufacturers in productivity-boosting technology. Indeed, this
was an advantage during the recession because big importers increased their purchases at low
prices. 2. Network of supporting industries was very strong. Due to this, garments
manufacturers saved transport and storage costs, import duties which boosted their
productivity. 3. Fear of importers to become too dependent on China. Because of this, many
Western importers started looking to diversify their supply sources which proved beneficial for

2. Who benefits when retailers in the United States source textiles from low wage countries such
as Bangladesh? Who might lose? Do the gains outweigh the losses?

When retailers in the United States source textiles from low-wage countries such as
Bangladesh, it is 1) the low-income countries benefit in job creation and in economic growth and
2) Customers also benefit because prices are more affordable, and retailers have benefits too in
having better margins. Those who might lose are 1) Highly developed countries such as America
- because outsourcing causes job losses, relocations, etc. and 2) Customers may lose in the
quality of the product. Altogether, gains do outweigh losses because these low-income
countries are slowly developing. Also, the standard of living is also improving, such as in China
where wage rates is growing. Moreover, if the developed countries want to enjoy product at a
low price and allow customers to afford these products, then these losses are inevitable.

3. What international trade theory, or theories best explain the rise of Bangladesh as a textile
exporting powerhouse?

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, it is textile
industry production at low labor costs.
Porter’s theory of determinants of National competitive advantage

It suggests that a country can create new advances factor endowments such as skilled
labor, a strong technology and knowledge base, government support, and culture. It illustrates
the determinants of national advantage. One of the competitive advantages of Bangladesh is
the strong network of supporting industries.

4. How secure is Bangladesh’s textile industry from foreign competition? What factors could
ultimately lead to a decline.

Bangladesh is well secured toward foreign competition and attractive due to the
following: Very low costs labor that leads to low costs products. - The requirement of western
importers to diversify their supply sources as they do not want to rely solely on China and
become dependent to it. - Investments by Bangladeshi textile manufacturers in productivity-
boosting technologies. The negative factors which could lead to a decline: - Constant disruptions
in electricity because the government has underinvested in power generation and distribution.
This is a major problem for the production of garments and can reduce significantly the
productivity and the competitive advantage of Bangladesh. - Roads and ports are inferior to
those in China and this makes Bangladesh look less attractive toward this factor