This study analyzes the impact of the Pakistan-China Free Trade Agreement (FTA) on Pakistan's textile industry, summarizing the work of Jamil, Chaudhry, & Chaudhry (2021,2023). Using firm-level data from the Census of Manufacturing Industries in Punjab, Pakistan from 2000, 2005, and 2010, we examine changes in productivity, quality, input usage, product mix, prices, and markups for textile firms before and after the FTA implementation. While the FTA led to small productivity and quality gains for exporting firms (6-8% and 1-2%, respectively), these gains were limited primarily to the spinning segment, which received the largest tariff reductions. Exporting firms increased labor and material inputs but did not significantly increase capital investment. They also reduced their product scope and lowered prices more than marginal costs fell, resulting in decreased markups. We estimate demand elasticities for different textile segments, finding that interior and clothing segments are the most elastic, suggesting potential for increased market share if given greater access. Finally, we find evidence of positive productivity and quality spillovers from exporting to nearby non-exporting firms, particularly for upstream producers. Overall, our results indicate that while the FTA increased trade flows, it did not substantially improve productivity or competitiveness for Pakistani textile firms in the short term.
A Sun, study studied this question.