Cointegration and causality testing for capital productivity, labour cost and export competitiveness of Indian textile industry
by Rahul Dhiman
International Journal of Business and Globalisation (IJBG), Vol. 29, No. 4, 2021

Abstract: The purpose of this paper is to examine the relationship between export competitiveness (EC), capital productivity (CP) and unit labour cost (ULC) for the Indian textile industry in the post-reform period, i.e., from 1991 to 2017. The present study uses Johansen and Juselius test for examining cointegration between selected variables and reveals the long-run relationship between the selected variables. The study uses Granger causality test to explain the direction of causation between the selected variables and results reveal the absence of feedback effects among the variables and only unidirectional causality is found from CP and ULC to EC. The results of the vector error correction model (VECM) reveals absence of long-run and presence of short-run causality running from CP and ULC to EC. The findings of the study will encourage the various textile firms to ensure technological upgradation; this will further motivate them to achieve the desired level of CP and hence achieve EC. The firms are also suggested to minimise the labour costs to gain competitiveness in the world markets.

Online publication date: Fri, 07-Jan-2022

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