ISAS Working Papers

This study attempts to empirically investigate the implications of unshackling of the global textile trade, following the complete phasing out of the Multi-Fibre Agreement (MFA) in 2005, on the efficiency of firms operating in the Indian textiles industry. By employing the Stochastic Coefficients Frontier Approach, it estimates the overall and input specific efficiency values for 215 sample firms during 1993-94 to 2005-06. Results of the study show that the average efficiency declined over the years, indicating the presence of inefficiency in using inputs. We argue that the Indian textile firms failed to utilise their inputs efficiently during the phase of liberalisation which, if done, would have helped them to withstand and overcome the intense competition from other players like China. Given that there is a paucity of empirical studies dealing with efficiency of the Indian textile industry in the light of phasing out of the MFA, this study seeks to fill such gaps in the available literature.