Structural change in import demand for textiles from developing countries

Scope and method of study. This study is to determine if there is evidence of structural change in textile import demand due to global arrangements. Observations on the Multifiber Arrangements (MFA), from the early 1970s to the mid-1990s, were used and split by dummy variables into two sample periods composed of MFA I and II (first period) and of MFA III and IV (second period). Two import markets of developed countries, the United Kingdom and the United States, were used to check for the behavior of import demand for textile products from developing countries. The dynamic RSAIDS of import demand models was applied to allow source differentiation for textile imports. The model follows the neoclassical theory of demand by imposing homogeneity and symmetry restrictions and also adding-up conditions. The full-system misspecification tests were conducted for the underlying statistical assumptions of the model. Evidence of structural change is checked by parameter stability tests provided within the system tests. Tests on block separability and product aggregation were checked for the suitability of the model's source differentiation. If structural change is detected, bias of structural change will be estimated. Coefficients and elasticities of the model are estimated.;Findings and conclusions. The misspecification tests verified the model's system of equations for its statistical assumptions, which therefore validated its statistical inferences. Parameter stability tests indicated that structural change is not supported in the models for both the UK and the US. The MFA seems to achieve its objective of maintaining orderly textile trade, especially in import demand. Coefficients of the models are significant, especially for lag of import share, source own-price, source cross-price and to some extent cross-product-price coefficients. Demand elasticities are significant, especially for elasticities of source own-prices, source cross-prices and expenditures with respect to import shares from both developed and developing countries.