Competitiveness Analysis of Pakistan’s Cotton Yarn Exports Relative to India and USA: A Demand System Application with Focuses on China’s Market

Abstract

This study employed the revealed comparative advantage (RCA), revealed symmetric comparative advantage (RSCA) and Vollrath’s indices to measure Pakistan’s export competitiveness of cotton yarn in the world. Meanwhile, the country’s export competitiveness is evaluated using the comparative advantage by countries index in China, the world’s largest consumer of cotton yarn and Pakistan’s main export destination. Additionally, linear approximated almost ideal demand systems (LA/AIDS) is employed to anticipate the demand relations for exports of cotton yarn (Pakistan, India and the USA) in the Chinese market over the period 1991–2019. The value of RCA indices greater than one indicates that the country has comparative advantage in exports of cotton yarn in both the global and Chinese market. The findings also revealed that the nation’s comparative advantage position has decreased in global market while improved in the regional market of China. Furthermore, based on the approximation of restricted LA/AIDS model, the results affirmed that the exports of cotton yarn had high own-price sensitivity with negative signs, whereas cross-price sensitivity with positive signs. With regards to Pakistan’s exports, estimates of cross-prices indicate that China’s imports of yarn from Pakistan are substitutable for imports of yarn from India and the USA. In addition, the expenditure elasticity for India and US cotton yarn is greater than one, indicating that China viewed their exports of cotton yarn as quality good. On the other hand, the expenditure elasticity for Pakistan’s is less than one, but close enough to one, which reflects the cut-off point for exports of quality goods. Pakistan, therefore, needs to produce cotton yarn more efficiently by reducing costs and enhancing the reputation of quality to increase exports and market share.