Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: The clothing sector has been a driver of diversification and growth for countries that have graduated into middle income. Using a partial adjustment panel data model, this study tries to explain the international location of clothing production based on a combination of variables suggested by the Heckscher-Ohlin theory and by New Economic Geography theory. Our Blundell-Bond system estimator results show that closeness to intermediates such as low-cost labor and textile production has a positive effect on clothing production. Factor endowment and closeness to the world market have inversed U-shaped effects. This is expected, because above a certain level several other sectors benefit even more from closeness and factor endowments, driving resources away from the clothing industry.

Keywords: Clothing Industry; New Economic Geography; Comparative Advantages; Industrial Agglomeration.

JEL-codes: F12; F13; L13; L67; R12; R30

38 pages, February 21, 2008

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