The Effect of Integration with Global Apparel Value Chain

What is it about?

This paper estimates the effect of integration with global apparel value chain on performance of Bangladesh apparel firms. The study does it by estimating an augmented Cobb-Douglas production function. The findings show that both backward linkage with foreign suppliers of intermediate inputs and forward linkage with global retailers of apparels positively affect firms’ output and labor productivity. By contrast, backward linkages with local suppliers have adverse effects on firm performances. The findings imply that it is a firm’s integration with the global apparel value chain, not the conventional backward linkage with domestic suppliers, that defines success of Bangladesh apparel industry in a globalizing world.

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Photo by Waldemar Brandt on Unsplash

Photo by Waldemar Brandt on Unsplash

Why is it important?

The apparel manufacturing sector is the key manufacturing and exporting sector in Bangladesh. Apparel production is considered one key driver of Bangladesh’s accelerating economic growth since 1991. The sector is employing nearly 4 million workers, 80 percent of them being women. Despite the remarkable growth of this sector, a common perception is that apparel firms in Bangladesh have flourished largely because of low-wage and abundant unskilled labor. It is also believed that the apparel industry is characterized by the simple market linkage in the sense that price is the key variable and it involves little exchange of tacit knowledge. This misperception was further reinforced after the April 24, 2013 collapse of Rana Plaza, which killed at least 1,135 workers and injured an estimated 2,500.

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