The Impacts of Trade Liberalization on Ethiopian Textile and Garment Sector

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Chapter one
Introduction

The proponents of classical theories on international free trade predict that free trade based on competitive advantage leads to mutual benefits to the trading partners; whereas, opponents of free trade insist on protectionism to secure fairness, Hill. (2005). There are a number of empirical evidences supporting both ideals of free trade and the positions of the opponents.

Based on the above approaches to trade liberalization , chapter two will present the overall principles and arguments related to trade liberalization, followed by benefits and impacts of trade liberalization on income distribution, employment opportunity, and environmental issues focusing on textile and garment sector. Here, particular attention will be devoted to current and potential impacts of trade liberalization on Ethiopian textile and garment industry.

The third chapter of the paper deals with research methodology i.e., data collection techniques, source of data, and tools to analyze and present the findings to reveal whether general assumption held on free trade is consistent with the current business practices, particularly in Ethiopian textile and garment sector.

1.1. Background

In a very general term, Trade liberalization assumed to improve global efficiency in resource allocation. It encourages international competition and cooperation to exchange goods and technological know-how, and etc. On the other hand, there are also evidences indicating the negative impacts of trade liberalization particularly in least developing countries, inducing income inequalities, job loses and decline of firms.

Textile and garment industry is one of the sectors that were challenged by trade liberalization after the removal of quota on textile products. The impacts of trade liberalization on Ethiopian Textile and garment sector appears to be consistent with some other African countries due to similar constraints in productivity and other factors affecting domestic companies’ competitiveness at local and international market.

1.2. Statement of the problem

Before trade liberalization of 1992, Ethiopian textile and garment sector has been enjoying governmental protection. Following trade liberalization, reduced tariff or quotas on imports of textile and garment products are likely to increase imports of textile products. And this may induce consumers shift from domestic textile products to cheap imports of textile products. Ultimately, such consumers shift might also reduce demand for domestic textile products adversely affecting and reducing income of the domestic producers, leading to decline and collapse of the sector, and job loses The major constraints in Ethiopian textile and garment sector are related to various factors including inefficiency and low productivity, originating from outdated technology and lack of marketing know-how, and institutional facilities like, structural elements and transportation Besides, costs of inputs, poorly motivated producers, product quality and inefficiency in R&D facilities and management practices or internal factors may be cited as the major problems of the sector, Eshetu (n.d). In addition to the above, uncertain and unreliable local farm product i.e., cotton quality and quantity appear to encourage the constraint of low productivity and competitiveness of the sector in domestic and international market.

Based on the prediction of international theories on free trade, the following research questions will be dealt with: Firstly, the research study will focus on, whether trade liberalization always benefits trading partners, if so under what condition?, secondly , whether trade liberalization imports positive or negative impacts on employment opportunity, labor issues and environmental pollution, technological transfer and firms’ efficiency, thirdly, whether predictions of free trade theories are consistently applicable to enhance the competitiveness of...
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