EFFECTS OF PHASING OUT OF MFA QUOTAS ON INDIAN GARMENT EXPORTS, 1992-2003

We examine the impact of phasing out of MFA quotas on Indian garment exports as an example of competitive labour-intensive sector in an emerging market economy that has been recently facing removal of export restraints. We employ three different methodologies using a monthly data from 1992:11 to 2003:9: Perron’s (1989) methodology of testing for unit roots in the presence of trend break, split-sample test of trend-break hypothesis and intervention analysis. The major conclusion is that the WTO’s decision to phase out the MFA quotas has had a positive impact on the Indian Garment Exports. Perron’s trend break hypothesis does support this as a cause for change in intercept, while the split-sample analysis shows that there has been a structural transformation in terms of introduction of trend-stationarity in place of difference–stationarity. Intervention analysis shows that this effect has been positive, significant and long-lasting. This analysis implies that Indian apparel sector may benefit from the phasing out of MFA quotas.