Using a sample of 321 textile and clothing companies for the
years 1992 to 2010, this paper analyses the effect of quota phase-outs
on firm-level efficiency in Pakistan following the end of the
Multi-Fibre Arrangement (MFA). It highlights sectoral heterogeneity
within the manufacturing industry as a result of MFA expiration. The
empirical methodology uses the structural techniques proposed by Olley
and Pakes (1996), and Levinsohn and Petrin (2003) in order to take care
of endogeneity in the estimation of production functions. The results
differ for the two industries: MFA expiration lead to an increase in the
average productivity of textile producing firms but a significant
reduction in the mean productivity of clothing producers. We offer a
number of explanations for this outcome, such as a change in the input
and product mix, entry by non-exporters in the clothing sector, and
sectoral differences in quality ladders. A number of crucial policy
lessons can be drawn from the findings of this study. JEL
Classification:F13; F14; D24; C14; O19 Keywords: Multi-Fibre
Arrangement, Trade Liberalisation, Productivity, Firm Heterogeneity,
Simultaneity and Production Functions, Endogeneity of
Protection
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