1. Introduction                        

In Vietnam, the textile and garment (T&G) industries have made impressive performance over the past years. The growth rate of the industries has been high at 10 percent per annum as opposed to the country’s annual GDP growth rate of 7.6 percent during the 1990s (GSO, 2001). The T&G industries have played an important role in the economy in general and in the manufacturing sector in particular. The share of textiles and garments in manufacturing output has been around 10.5 percent (GSO, 2001). The share of T&G exports out of the country’s total exports has been around 14.5 percent (GSO, 2001). In 2001, the export turnover of the T&G industries was about USD 2 billion, accounting for 13.3 percent and 16.6. percent of total value of exports and non-oil exports respectively, making the industries one of the leading foreign exchange earners for the country (World Bank, 2002b). In terms of employment generation, the industries take up 25 percent of total industrial employees (Bui, 2001).

Despite significant achievements, there exist a number of constraints to further development of the industries. Although the growth rate of textile and garment industries is high, it has been uneven, with the garment sub-sector growing at 21 percent per annum on average, as opposed to 6.1 percent for textiles (GSO, 2001). According to Hill (2000), although this record is impressive, it is not outstanding in international terms. While the share of garment industry in terms of total industrial output has increased slightly, the share of textiles has declined. This decline may be due to the fact that the textile industry has not kept pace with new trends in demand. Its product is of low quality due to outdated technology. The domestic market for textiles has been dominated by imported goods, especially cheap smuggled textiles from China. The poor performance of the textile industry is widely believed to be caused the obsolescence of technologies (IE, 2001b). The garment industry is also not without problems. Most garments firms operate on low value-added segments of export markets. They often work on a CMT (cut-make-trim) basis where buyers find domestic suppliers, and provide them with product specifications and imported fabrics (Hill, 2000). Consequently, the value added is low. In addition, increasing international competition also poses more downward pressure on prices and costs of textiles and garments firms. The competition has even intensified since the countries in the region devalued their domestic currencies in response to the Asian crisis. All these factors threaten the viability of the textile and garment industries and lower their profitability. In order to rise to these challenges and to compete successfully in the market place to survive and develop, T&G firms must make proper assessment of their competitive position and identify main factors that affect their competitiveness and performance. Such analysis may prove to be useful for policy in terms of making the business and policy environment more favourable for these labour-intensive export oriented manufacturing industries.

Competitiveness is an important topic and therefore is addressed at length in the economic literature. However, there is little agreement about the precise meaning of competitiveness. Moreover, measuring competitiveness is not an easy task. In analysing competitiveness, this study will explicitly adopt a narrowly defined micro approach with a strong emphasis on cost competitiveness. Cost-based competitiveness can be understood in a narrow sense at microeconomic level which is evaluated by the firm’s ability to sell its products profitably in a given market (Cockburn et al., 1998). With this definition of cost competitiveness, we can go ahead with competitiveness analysis for domestic firms without having to identify the firm’s competitors. This is especially relevant for competitiveness analysis of T&G firms where there are so many suppliers in the product market which can therefore reasonably be assumed as perfectly competitive with firms not being able to identify the whole set of their competitors.

In this study, textiles and garments will be treated as two separate industries although in Vietnam they are officially classified as belonging to a single industry. There are two reasons for such a separation. First, the T&G industries invariably use different technologies. The textile industry is characterized as relatively more capital-intensive while the garment industry is featured as more labour-intensive. Second, in terms of trade policy, the textile sub-sector may be considered as a proxy for a range of import competing manufacturing industries while the garment sub-sector can represent labour-intensive export-oriented manufacturing. Analysis and comparison of these industries therefore may provide useful information for policy making in regards of  trade, exchange rate, competition and infrastructure development etc.

Because the study is concerned with cost-based competitiveness, it will focus on (i) surveying theoretical and empirical issues on how to measure firm’s cost competitiveness; (ii) conducting analysis of cost competitiveness to assess the current level of cost competitiveness of T&G firms in Vietnam; (iii) identifying the major determinants of firms' cost competitiveness; and (iv) simulating how proposed policy changes will affect cost competitiveness of T&G firms.

In doing this study, both primary and secondary data are employed. The primary data used for qualitative and quantitative analysis are extracted from the Vietnam Textile and Clothing Competitiveness Survey conducted by the Institute of Economics in late 2001. The survey collected data on 150 T&G firms in the North and South of Vietnam. The secondary data employed for analysis of the performance of T&G industries and the business environment are collected from various sources such as published and unpublished research reports, working papers, articles, and legal documents.

2. Methodology and Data

2.1 The Concept and Measurement of Cost Competitiveness

The concept of competitiveness is widely used by economists, policy-makers, and businessmen. However, there is no consensus as to what is meant by the term. There exist various definitions, approaches and indicators of competitiveness. The concept of competitiveness that is used in this study is the one of firm’s level (microeconomic) cost competitiveness at market prices proposed by Siggel and Cockburn (1995), Cockburn et al. (1998), Siggel (1998), and Siggel et al. Cockburn et al. (1998) provides a simple, but useful definition “competitiveness is the capacity to sell one’s products profitably. For a producer to sell profitably, i.e. to be competitive, his costs per unit of production, also called average cost, must be lower or equal to the market price”. Should any cannot meet this test, it cannot sustain its market position and it would eventually go out of business. Thus, to determine whether a firm is competitive we examine its unit costs relative to the market price. Defining as such, the concept of competitiveness is applicable to analysis of the firm’s competitiveness at both the domestic and international levels. It should be stressed that as this definition of competitiveness relies on market price, competitiveness understood in this sense is a combination of real competitiveness determined by comparative advantage, and various price distortions caused by tariff and non-tariff barriers to trade, subsidies and penalties which Siggel (1998) terms “virtual competitiveness”.

The indicator of competitiveness used in this study is a unit cost ratio (UCR):

UCR = TC /PQ = TC/VO                                                                                (1)

Where: VO is the value of output and VO = PQ.

            P is the ex-factory price; Q is quantities sold.

Defined as such, unit costs are being measured in monetary unit of production. Monetary unit costs will be used in the rest of the study. Thus, we will use the term “unit costs” to denote monetary unit costs and only add the term “monetary” just in case there may be confusion. The applied competitiveness criterion (equation 1) becomes:

UCR £ 1                                                                                                             (2)

Firms are profitable and competitive in the market place if their unit costs are not higher than unity. This measure of cost competitiveness corresponds to the profitability of the firm. As total cost includes the opportunity cost of own capital, taken at the average market interest rate, the firm is deemed to be competitive, i.e. UCR is not greater than unity, if the rate of return exceeds the opportunity cost of capital. Competitiveness in this sense means that the price covers full cost, including the full opportunity cost of capital and is, therefore, a long-run criterion.  If sunk costs are excluded from calculation, UCR>1 means that firms are not competitive even in the short run.

2.2 Firm’s Reactions to Changes in Relative Prices

A policy change normally alters relative prices that the firm faces. In one extreme case, firm does not respond to this change and in the other extreme, firm will give a full reaction to the changes in relative prices. The former may be thought as a very short-run effect of a policy change, when time is too short for the firm to adjust. This interpretation however has limited policy relevance. A more useful interpretation would be that firms are too constrained, in terms of access to resources including capital, labour, technology, information etc., to have any reaction to the changing environment. On the contrary, the full reaction scenario can be thought as the case of market perfection. The reality in economies in transition like in Vietnam should be something in between. For policy, it is useful to compare the two extremes, i.e. not react and fully react, as the difference in firm’s profitability would provide an upper bound for the firm-level cost of market imperfections.

Calculation of the impact on firm’s competitiveness of a policy change is straightforward, but the methodology of taking into account firm’s full reaction needs some detailed. As pointed out in Nicholson (1992), Tybout et al.(1996) and Institute of Economics (IE) (2001c), the task of modeling firm’s reactions to changes in prices of inputs, outputs and other production factors basically amounts to estimating the firm’s production function and/or cost function. For this purpose, the Cobb-Douglas production function is employed. With the assumption that production factors and inputs are combined at two levels, the derivation of the production function is relegated to estimate the Cobb-Douglas value added production function. Then, the impact on firm’s unit cost of changes in relative prices can be measured through  the cost function with an assumption that firms are profit maximizing and facing no constraints in achieving this.    

To analyze the reactions of firm, Tybout et al. (1996) start with the firm’s long run cost function, which allows firm to attain minimum cost (C) at a given output (Q), productivity level (A), and vector of input prices for intermediate goods (I), labour (L) and capital (K) (P_I, P_L, P_K ):

            C = f (Q, P_I, P_L, P_K, A)                                                                                          (3)

Then by Shephard’s lemma, the first derivatives of the cost function are the cost-minimizing input demand functions:

   d lnC = (1/h)d lnQ + s_I (d lnP_I) + s_L(d lnP_L) + s_K(d lnP_K) + (dlnC/dlnA)d lnA           (4)

 where s_I is the share in total cost of the ith factor and h is the elasticity of output with respect to cost, i.e., returns to scale, or also called elasticity of scale. Normalizing by the value of output, they obtain a standard decomposition of the sources of growth in cost per unit revenue:

d lnC – d ln(P_QQ) = (1/h - 1)d lnQ + s_I (d lnP_I - d lnP_Q) + s_L(d lnP_L - d lnP_Q)

     + s_K(d lnP_K - d lnP_Q) +  (dlnC/dlnA) d lnA                                   (5)

Thus, growth in unit costs is equal to the sum of an output growth effect, three relative input price growth effects, and a productivity growth effect. Note that, under constant return to scale (h = 1), the output growth effect disappears because efficiency does not depend upon the scale of production.      

All  terms in equation (5) can be calculated from our dataset. Specifically, the last term of (5) can be derived from (i) the explicit cost function and (ii) estimation of TFP growth rate (i.e. dlnA). In this study, proportionate change in productivity (dlnA = dA/A), is derived from secondary sources (IMPR, 2002b), which in turn made estimates on the basis of the same panel dataset covering 4 years 1997-2000. According to this source, average annual TFP growth rate (dlnA) is 5.2% for the textile sub-sector and 9.1% for the garment sub-sector. The cost function leaves the first term of (5) (namely dlnQ) indeterminable. To model the firm’s reactions to price

changes, one should explicitly derive the supply function. After manipulating, we get:

This elasticity of cost with respect to productivity (TFP) can be calculated based on data in the base year, and parameters estimated in the value added production function.

where  R₀ =[q_va*A*a ^a *b ^b];  g = (a+b);  Q – output (quantities) in the base year; Prices of output, capital, labour, intermediate inputs are all normalised to 1 and therefore dP –output price growth rate; dw₁ – growth rate of price of capital; dw₂  - growth rate of price of labour. Besides, as output price is normalised to 1, output in physical unit as so defined in the base year is equal to the output value.

For the Cobb-Douglas function, g is return to scale and therefore g = h, the first term of (5) - the output growth effect - is equal to:

where  R₀ = [q_va*A*a ^a *b ^b]

2.4 Simulation Scenarios

The simulation exercise aims at quantifying the effects on firm’s competitiveness of changes in policies that are envisaged in Vietnam’s policy reform agenda. Twelve scenarios are framed based on these proposed changes and are summarised in Table 1. The purpose of the simulation exercise is to quantify the effects of on competitiveness of textiles and garments as mentioned above. At the same time, as long as the proposed policy changes aim to remove policy-induced price distortions, this exercise also allows to assess how price distortions caused by existing government policies affect cost competitiveness of T&G firms.

Table 1: Simulation Scenarios and Expected Price Effects

    Source: Scenarios are taken from IE (2001c) with some modifications by the author

It should be noted that firm's reactions (by substituting between labour and capital in creating value added) to changes in relative prices of inputs, output and production factors can take place only under scenarios 1 (changes in tariffs) and 5 (exchange rate realignment), and the two combined scenarios 6 and 7. As long as this study makes a focus on the comparison between “response” and “no response” cases, only the simulation results of these scenarios will be presented and discussed in the next section. The simulation results of the other scenarios (i.e. 2, 3 and 4) will be considered in combination with other policy changes under the two combined scenarios 6 and 7.

2.5 Some Technical Aspects

There are some definitions and technical issues that need to be made explicit. Firstly, in the study, the threshold of 50% clothing out of total production value will be used to separate out textile and garment sub-sectors. In addition, with regard to size of firms, Vietnamese definition is used, according to which a firm with employment of less than 300 workers and capital of VND 5 billion capital or less is considered to be of small or medium scale (small), otherwise is of large scale (non-small). And finally, a firm that has export share higher than 50% of total revenue is defined as outward looking (or export oriented) firm, and inward-looking firm if otherwise. More detailed discussion of these definitions can be found in IE 2001c.

Secondly, the simulation exercise will be done in two steps. In the first step, firm's reactions to changes in relative prices of inputs, output and production factors have not taken into account. As already mentioned, these results are considered as short term or first-round effects only, or of more interest, they can be interpreted as the extreme case of market imperfections that do not allow firms to respond to change. Two indicators of unit cost are calculated. The first indicator includes cost firm’s own capital, i.e., depreciation plus opportunity cost whereas the second indicator does not. Firms with unit cost including cost of firm’s own capital of 100%, or lower (higher) can be regarded as competitive or financially viable (uncompetitive, or non-viable) in the long run as these firms can (cannot) recover all costs. Firms with unit cost exclusive of firm’s own capital higher than 100%, can be seen as uncompetitive (or lacking financial viability) in the short run as these firms cannot recover even variable costs. In the second step, we incorporate firm’s full reactions to price changes into the calculations and make comparison between the two extreme cases.        

The value added production function is estimated separately for textile industry and garment industry with the following results.

For the textile industry :

log(VA) = 0.864 + 0.421^* * log(capital)  + 0.535^* * log(labour)                  (6) 

Adjusted R² = 0.79; Number of Observations = 34

For the garment industry:

log(VA) = 0.474 + 0.137^** * log(capital) + 0.808^* * log(labour)                  (7)

Adjusted R² = 0.67; Number of Observations = 96

Where: VA: value added;  labour: labour input; capital: capital input

                        * , ** denote significant at 1%, 10% level, respectively

Diagnostic tests for omitted variables and heteroskedasticity for (6) and (7) have passed. Statistical tests under (6) and (7) do not reject the null hypothesis that both T&G firms have constant returns to scale. This means that in the long run when firms face no constraints in choosing the mix of production factors, the return to scale is constant (h = 1) for both groups of firms. The first term on the right hand side of (5) disappears and as a result, the first round effect is equal to the final effect. In the short run, when capital of firm is fixed, the returns to scale are decreasing. The return to scale is 0.535 and 0.808 for textiles and garments, respectively.

3. Initial Discussions of Cost Competitiveness of T&G Firms

3.1 Cost Structure of Surveyed Firms

A quick cost analysis may provide important information on how firm’s competitiveness would be affected by various types of policy change. It would also be helpful for interpretation of results of subsequent simulations. It should be noted that in subsequent analyses, monetary unit cost will be expressed in percentage term. Therefore, the competitiveness, or equivalently financial profitability, threshold will be 100% instead of 1. Shares of cost components out of total production value of T&G firms are presented in Table 2. The table shows that for textiles, materials make up the largest share, followed by non-tradable inputs, wages and capital inputs. Taxes and contributions account for only a modest share.

Table 2: Cost Structure of Surveyed Firms (Percentage of Production Value)

Source: Author's calculations based on survey data

These values, however, substantially differ from one another for textiles firms of various types. Our calculations show that there are large differences in share of materials between small and non-small firms (36.3% vs. 57.4%), between state owned enterprises (SOEs) and firms of other forms of ownership. Such differences also exist in shares of non-tradable inputs and wages across firms of various  types: inward-looking and outward-looking, small and non-small, SOEs and foreign invested enterprises (FIEs) and non-state enterprises (Non-SOEs), and firms in the North and in the South. These observed differences suggest that policy shocks such as elimination of import tariffs, more competition in the output market etc. will likely exert differentiated impacts across textiles firms of different types.

Table 2 shows a different picture of cost structure of garments firms compared to that of textiles. For garments, wages constitute the largest cost component which are consistent with the labour-intensive nature of the garment industry. Next come non-tradable inputs and  materials. Capital inputs and taxes and contributions account for relatively tiny shares except for the case of inward-looking firms. Its unusually high share of capital inputs (34.6%) suggests that these firms are inefficient in using capital, resulting in poor performance as indicated by exceptionally high unit cost compared to the average unit cost of garments firms. However, it should be also noted that this result may due to the small sample of inward-looking garment firms, which may not be representative for all inward-looking garment firms. In general, however, there are no large differences between various types of firms with regard to capital inputs. Thus, it is expected that changes in general capital cost will have roughly uniform effects across firms of different types.   

The differences in shares of materials, non-tradable inputs and wages between textiles firms and garments firms are large and statistically significant at 1%. These results imply that there are substantial differences between textiles and garments firms and price shocks to these inputs (for instance, reduction in import tariffs, changes in exchange rates etc.) resulting in changes in the relative prices of tradables over non-tradables etc., would have differentiated impacts on these types  of firms.

3.2 Unit Cost and Firm’s  Competitiveness

As already mentioned earlier, unit cost of 100% is defined as  the threshold that divides all firms to competitive (or financially profitable) and non-competitive (or non-profitable) groups. Distribution of unit cost of T&G firms is illustrated in Figure 1.

Figure 1: Distribution of Unit Cost of Surveyed Firms

      Source: Author's calculations based on survey data

The  figure shows a somewhat brighter picture for textiles than garments firms do. More than half of textiles firms (51.2%) is cost competitive and another 14.6% of firms with unit costs of between 100% and 110% - a range being considered as inconclusive due to measurement errors. The peak of distribution of unit cost of textiles firms is located in the range 90-100%. A relatively large proportion of textiles firms (45.7%) has unit cost in the range 90-110%, implying their vulnerability to a shock and/or high sensitivity to changes in the threshold.

As for garments, only 41.3% of firms are financially profitable and another 11.9% of firms are with unit cost of between 100% and 110% - an inconclusive range. A large share of firms, 37.6%, has unit cost being higher than 120%. The percentage of competitive garments firms seems  not to be very sensitive to changes in the threshold as only about 28.4% of firms are located in the range 90-110%.

Closer look at the data reveals that those firms that have unit cost in excess of 120% are large inward looking textiles and garments firms of various ownership. Most of these firms are located in the South.

Calculations of mean and median values of unit cost show that garments firms surprisingly seem to fare worse than textiles firms regarding both mean and median values, which are  113.3% and 107.8%, respectively, for garments; and 106% and 98.3%, respectively, for textiles. The unit cost of textiles firms is lower than that of garments firms, and the difference is statistically significant at 11%. However, this finding is less striking if we take into account the fact that the textile industry is more protected in the domestic market than the garment industry. The textile sub-sector is characterized as inward-looking whilst the garments sub-sector is considered outward looking. Normally, inward looking industries are more highly protected in the domestic market and enjoy many privileges. Our survey confirms it. The calculated NRPs are not high for garments firms (just 4.1%) but quite high for textiles firms, especially those highly inward looking ones (25.9%). ERPs are especially high for inward-looking textiles firms, estimated at 49.2% by Corden method and 116.6% by Balassa method. The ERPs for garments firms are generally low and the ERPs calculated by Balassa method and net ERPs are negative (-0.9%, -21.4%, and –0.9%, respectively). These suggest that the current trade policy puts the garment industry at disadvantage as compared to the textile industry. Insofar as higher level of protection translates into higher level of profitability, or equivalently, lower unit cost, ceteris paribus, it is easier to explain why textiles firms have lower average unit cost than garments firms. This also points out that textiles firms will be likely to get worse off when Vietnam will have to reduce or eliminate tariffs imposed on myriad articles in pursue of further trade liberalization and realizing its commitments under AFTA agreements in 2006, and WTO agreements that are also forthcoming.

Regarding textiles firms, unit costs differ between firms of various types which generally accords with our initial expectations. Outward looking firms perform better (incurring lower unit cost) than inward looking firms with unit cost of 101.5% and 109.8%, respectively. FIEs have lowest unit cost, followed by non-SOEs, SOEs local and SOEs central with unit costs of 104.7%, 105.1%, 107.3% and 108.3%, respectively. However, it is surprising that North-based firms have lower unit cost than those in the South (101.7% vs. 108.7%). More notably, in terms of size, small firms have much lower unit cost (93.6%) than non-small ones (107.3%). As discussed in Hill (1998), scale economies are significant in the textile industry. The higher unit cost of non-small firms may imply that the textile industry may have not yet reached the point at which economies of scale begin to take effect. Another possible explanation is that domestically produced textiles of larger firms have to fiercely compete with smuggled textiles from China, while products of small textiles have fewer foreign substitutes in the domestic market. It should be noted, however, that all the aforesaid differences are not statistically significant at 10% level.

With regard to garments firms, unit costs are also different across firms of various types. Inward looking firms have much higher unit costs (136.8%) than the outward looking (unit cost of 112.2%) and the difference is significant at 10% level. This purports that Vietnamese garments firms, as long as it can be assumed that the sample firms reasonably represent the industry, cannot operate profitably in their home market. They might be loosing their position in the domestic market to imported garments, especially those products smuggled from China, a pervasive practice that is widely acknowledged in Vietnam. By size, small firms have lower unit cost than non-small firms (112.8% vs. 113.4%) but the difference is not large and not statistically significant. Put differently, size appears not to matter in determining firm’s cost competitiveness. By region, North-based firms have much lower unit cost than South-based firms (105.7% vs. 119.3%) and the difference is statistically significant at 5% level. The result is quite surprising as it is usually perceived that the business environment in the South is more conducive to development of firms. Another astounding empirical result is that SOEs are most competitive (profitable) with unit cost of 104.3-109%, followed by non-SOEs with unit cost of 112%. FIEs have highest unit cost of 123%. The magnitude of difference in unit cost between FIEs and firms of other ownership forms is statistically significant at 10% level. Nevertheless, the higher profitability performance of SOEs vis-à-vis firms of other ownership types should be interpreted with care as (i) the level of accuracy in the accounting systems differs across firms of different forms of ownership (FIEs and private firms are often alleged to inflate their costs, deflate revenues through the so-called price transfer practice and consequently understate their profits), and (ii) SOEs often enjoy more favourable treatments and privileges under the existing business environment in Vietnam. SOEs have better access to quotas to EU, Canada and Norway, which leads to variations in revenues across firms with various ownership forms. The effective borrowing rate of SOEs is lower than that of FIEs and Non-SOEs, thereby lower total costs and unit costs. In addition, it should be noted that by saying a firm is more (less) cost competitive than another firm in this way we mean the former firm has better (less) ability to expand it outputs and relative market share than the latter firm. It does not necessarily mean that the former firm will definitely drive the latter firm out of business. In addition, it also does not necessarily mean that the former firm has unit cost lower than 100%.

By and large, initial analyses show some “puzzling” results regarding the financial profitability of firms of various types. However, care should be taken in interpreting these results as all existing price distortions reflect in this unit cost indicator, thus distorting the true performance picture of these firms. Only when all of these distortions are removed can we make firm conclusion with regard to relative competitiveness of these types of firms.

4. Simulation Results and Firm's Reactions

4.1 Changes in Tariffs on Imported Goods

Trade liberalization alters both value of output and cost of tradable inputs. The net effect of trade liberalization depends on whether the former or the latter effect dominates. First round effect (i.e. without taking into account firm’s response) on imported inputs and outputs of T&G firms of reduction and elimination of tariffs under scenarios 1.1 and 1.2 are presented in Table 3.

All indicators show that with the reduction in import tariffs to 5% or complete elimination (tariffs being reduced to 0%), unit costs of firms, regardless of which measure is used, increase but the magnitude of change varies. The percentage change figures show that unit costs of textiles firms increase more than those of garments firms, for example 10% vs. 2.6% in scenario 1.1. These figures show that tariff reduction, or equivalently, further trade liberalization, hurts cost competitiveness of firms in both industries, particularly textiles firms. However, if both T&G firms are broken down by export orientation, it is found that not all textiles firms are hurt more than garments firms. In fact, it is inward looking garments firms that are hurt the most. Next are inward looking textiles firms. Outward-looking firms of both T&G industries roughly equally adversely affected, but less than the first two types of firms. This finding is rather interesting in the sense that it is a bit contrary to the common perception about textiles firms in Vietnam. These firms are generally thought of as those growing behind high protection barriers. They generally cannot survive in a trade liberalization environment. Yet, these empirical results imply that whether firms are textiles or garments, as long as they are export oriented, they can be prepared to adapt to fiercer competitive pressures in markets exerted by the on-going trade liberalization march.

Table 3: First round Impacts of Tariffs Reduction on Firm’s Cost Competitiveness: Percentage Changes in Unit Costs (%)

Source: Author's calculations based on survey data

Table 4 presents the status of financial viability of firms before and after tariff changes.

Under scenario 1.1, for instance, the number of financially viable textiles firms drops from 21 to 15 (equal to 14% of firms) and from 26 to 18 (equal to 19.5% of firms) in the long-run and short run, respectively. For garments, the number of firms that becomes non-financially viable is smaller, with just 3 (or 2.8% of firms) and 2 (or 1.9% of firms) firms becoming non-financially viable in the long and short run, respectively.

Table 4: Changes in Import Tariffs and Financial Viability of Firms