Academic journal article The Lahore Journal of Economics

Innovation in the Textiles Sector: A Firm-Level Analysis of Technological and Nontechnological Innovation

Academic journal article The Lahore Journal of Economics

Innovation in the Textiles Sector: A Firm-Level Analysis of Technological and Nontechnological Innovation

Article excerpt


Recent developments in the theory of economic growth and availability of data highlight the importance of innovation for the sustained growth of output and productivity. The process of innovation benefits the economy in several ways: by increasing productivity, reducing costs, creating more and better jobs, diversifying industrial composition, increasing incomes, better marketing techniques and managerial restructuring of businesses.

However, our understanding of innovations and their economic impact is still limited, especially in developing countries. In recent years, information technology has led to an extraordinary increase in access to information and new markets for firms in many developing countries. This, coupled with increased globalization, is constantly changing the landscape of innovation and firm competitiveness. It has also resulted in greater international competition and new organizational forms for the effective management of global supply chains. As a result, knowledge has taken a central place as the main driver of innovation and economic growth. In such a knowledge-based economy, it has become increasingly important to better understand critical aspects of the innovation process, such as innovation activities beyond research and development (R&D), the interaction among different actors in the market and the relevant knowledge flows.

Using a sample of 431 Pakistani textiles and apparel manufacturers, this study explores the dynamics of firms' innovation activities by analyzing their innovation behavior, the extent and types of innovation, the resources devoted to innovation, sources of knowledge spillovers, factors hampering technological innovation and the returns to innovation for three years, 201315. Textiles, like many other merchandise products, have experienced tremendous growth in recent years. World exports of textiles and clothing increased from $482 billion in 2005 to $797 billion in 2014. During the same period, Pakistani textile exports increased from $10.7 billion to $14 billion (US dollars). However, compared to the rest of the world, the textiles sector in Pakistan has been fairly stagnant and its share of world textile exports has been falling throughout the past decade.

As the major manufacturing sector of Pakistan, textiles contribute one fourth of industrial value-added and employ 40 percent of the industrial labor force. Most importantly, the sector accounts for, on average, 56 percent of national exports. Since it is competing in global markets, a continuous flow of innovation is required to at least maintain its share of world trade. This competitive pressure requires the innovation of new products, new processes, new organizational structures and new marketing techniques to survive and strive in the global arena.

In Pakistan, two particular characteristics of textiles - scope and the production chain - posit both opportunities and challenges for becoming more innovative and competitive. First, even though textiles account for 56 percent of national exports, their share of world trade is less than 2 percent (1.8% in 2014). There is greater scope for increasing this world share through innovation and competitiveness. Particularly given the increasing trend in wages in China, the leading textiles exporter, coupled with the recent GSP plus status granted by Europe, openings are more likely for competitive textiles firms. Second, textiles have the longest production chain, with inherent potential for value addition at each stage of processing, from cotton to ginning, spinning, fabric, processing, made-ups and garments.

In this study, we take into account the fact that innovation is a dynamic and nonlinear system that is difficult to measure. Traditionally, two dominant ways of measuring innovation are R&D investment and patents. However, both these proxies are associated with inherent deficiencies. R&D investment is an input in the innovation process rather than an output. …

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