An Analysis of the Production Function of Ready-Made Garments Industry in Bangladesh: A Case of Tex-Town Group Limited

Abstract

More than 78% of Bangladesh’s export earnings come from the garment industry. The ready-made garments (RMG) sector has a greater potential than any other sector in terms of employment and foreign exchange earnings to reduce poverty and make a contribution to the national economy. In this paper, we attempt an econometric estimation of Cobb-Douglas production function in Bangladesh’s ready-made garments industry and also test the hypothesis that ready-made garments industry is expected to reap better economies of scale in a competitive environment. We try to resolve some econometric issues such as heteroscedasticity, autocorrelation and multicollinearity  in the production function estimates by adopting different solutions and adjustment procedures with a view to obtain reliable parameter estimates. . This study has been used the annually time series data about ready-made garments production, labour wages, and capital of Tex-Town Group Limited from 2002-2013. Ordinary Least Square (OLS) method is used to estimate the model. The results show that there is a positive relationship between labour wages, capital and ready-made garments production in Bangladesh. The value of R2 is 0.687. This indicates that about 68.7% of the total variation in the ready-made garments production is explained by the labour wages and capital in Bangladesh. The results are statistically significant at 5% level of significance. This study suggests that increase in labour employment and capital to increase the production of ready-made garments in Bangladesh.

Keywords: Ready-made Garments Industry; Production Function; Wage, Capital.