Diversification of Rmg/ Knitwear Exports of Bangladesh

Diversification of RMG/ Knitwear Exports

In the last decades the labor-intensive clothing and textile sector (RMG and Knitwear) has been one of the fastest growing segments of world trade. RMG and Knitwear are among the first manufactured products from an industrializing economy but their significance decreases as workers’ wages increase. As a result, RMG and knitwear trade relations are dynamic: countries like Japan, Korea, Hong Kong, Malaysia and Taiwan were highly competitive in this sector, but now Bangladesh, China, India, Indonesia, Pakistan and Vietnam have taken over due to low labour costs. Several studies argue that even China is losing its comparative advantage in the sector. In this context, an important precondition for a sustained growth of Bangladesh’s clothing sector will be its ability to respond to the changes in global RMG and Knitwear supply and demand.

Why diversify of export destinations are required?

Several cross country studies have shown that greater diversification is correlated with more rapid growth of per capita income1. Diversification makes countries less vulnerable to trade shocks by stabilizing their export revenues. It also has spillover effects in the economy - it creates learning opportunities that lead to new forms of comparative advantage.

Countries diversify by increasing the number of trade partners they have (breadth), and/or by exporting new products to old markets (depth). While deepening relationships with existing markets is key for export growth, geographical diversification is found to be of great significance for low income countries such as Bangladesh – for example the East Asian Tigers achieved well over 300% gains in this area between 1974 and 2003. More recent analysis suggests that the opportunities for many countries to further exploit geographical diversification are enormous.

The global downturn, which ensued in the develop economies like the US and the EU countries, forced to cut down both the...