The Effects of Trade Liberalization in Textiles and Clothing on the Greek Market for Cotton Yarn: A Multi-Market Analysis

The Round of Uruguay (1987-1995) signaled the end of the Multi Fiber Agreement (MFA) for textiles and clothing. The quota regime, in place since 1974, was decided, according to the Agreement on Textiles and Clothing (ATC; 1995), to be gradually eliminated by the year 2005. As a result, prices of cotton yarn in the world markets decreased affecting producers in all cotton yarn exporting countries, including Greece. At the same time, the labor cost in the western industrialized countries remained high, or even increased, exerting further pressure on yarn producers. The present paper examines these changes for the cotton yarn industry in Greece, the sector under consideration in this paper. We use a multi-market partial equilibrium model which allows us to take into account input and output price changes, relevant for the industry under study. Using line integral theory, Seemingly Unrelated Regressions (SUR) with restrictions (IZEF) and non-parametric bootstrap we estimate the welfare effects to producers and consumers. Findings show that the gradual elimination of quotas had a substantial negative effect on the welfare of cotton yarn producers while consumers’ welfare has been affected in a positive manner.