Middle Class to Rescue the Apparel Sector in Sri Lanka

Abstract

Having begun as an unskilled labour-intensive mass-production, the apparel industry in Sri Lanka transformed itself into one that caters to high-end value chain manufacture in a relatively short time period. During its period of transition since the phasing out of the Multi-Fiber Agreement (MFA), which, de facto, provided a shield against its inherent competitive disadvantage viz-a-viz its competitors, since its inception in the 1970s, demanded extraordinary structural interventions within and outside the industry if the sector to survive. Though the sector’s earning capacity is around US$5 billion per year, which is about 0.25% of the world revenue within the apparel sector, the industry is planning to achieve a revenue goal of US$8 billion per year by 2025. According to JAAF (Joint Apparel Association Forum of Sri Lanka), apart from stable policies and labour priorities, improving productivity is the most effective way of achieving these goals. This research explored the influence of Total Factor Productivity (TFP), a widely used economic factor in many similar empirical studies. The analysis of regression coefficients obtained by processing cross-sectional data through a multiple regression Cobb-Douglas production function suggests that higher TFP gains are mostly associated with medium-sized enterprises, the middle class in the sector, compared to small and large-sized organisations. The study envisages that the research findings will provide insights to pursue appropriate state policies that could unravel the true potential of the industry as a growth driver and a broad industry diversification catalyst.