World Trade in Apparel: An Analysis of Trade Flows Using the Gravity Model

Abstract

Although apparel trade is highly regulated, trade flows conform to patterns predicted from a simple gravity model centered on distance, size, and cost variables. For low-value apparel products, which tend to compete on price, labor costs were a significant determinant of trade flows, causing production to be dispersed to low-wage areas. For high-value products, which tend to compete on quality, fashion, and quick response to changing demand conditions, production for export tended to take place near fabric suppliers and final markets, which tend to be in higher-wage areas. Apparel production cannot be characterized exclusively according to the New International Division of Labor (NIDL) hypothesis or by other explanations based on comparative factor costs. Proximity to markets and suppliers often outweighs the importance of labor costs, particularly for high-end apparel production.