Why export competitiveness differs within Indian textile industry? Determinants and empirical evidence

This study aims to examine whether export competitiveness (EC) in the two groups of the Indian textile industry i.e. “textiles” and “textile products” group differ.

The study examines how exchange rate (ER), real effective exchange rate (REER) and EC of both the groups are related in the long run over the period 1991-1992 to 2018-2019 using Granger causality test and Johansen and Juselius co-integration test.

The study confirms that EC is a challenge that needs to be addressed to sustain in the international market, as the volatile trend can be found for EC in both groups. The econometric framework shedding light on both groups of the textile industry suggest that select determinants have different relationships with the EC for two groups. The findings of the Granger causality test reveal that the presence of unidirectional causality running from ER to EC in the case of both the groups. Also, the select variables are found to be co-integrated in the long run. However, in the case of REER, no causality is found running from REER to EC.

ER is a vital determinant of EC and exporters can sustain competitiveness in global markets by reducing their profit mark-up in the face of an appreciating currency.