Review of Industrial Organization (2005) 26:349–370 © Springer 2005
Industry Dynamics in the Swedish Textile
and Wearing Apparel Sector
Department of Economics, Lund University, P.O. Box 7082, S-220 07 Lund, Sweden.
Abstract. This paper analyses the adjustment process within the Swedish textile and wear-
ing apparel sector and ﬁnds results that support the notion of Schumpeter’s ‘creative’
destruction. The turnover of plants and jobs seems to ‘improve’ the industries from within
due to an exit (entry) of less (more) productive plants, exit (entry) of old (new) incum-
bents, a destruction (creation) of less (more) human-capital intensive jobs, and a supply
of new products on the world market. The econometric analysis of the probability of exit
with plant, ﬁrm and industry characteristics supports the idea of a rationalisation from
Key words: creative destruction, entry, exit, import competition, plant level.
JEL Classiﬁcations: F1, D2.
The textile and wearing apparel sector (TA hereafter) is often adduced as
an example of an industry under destruction in more advanced economies
due to severe competition from low-wage countries. The Swedish TA sec-
tor is no exception.
In the Swedish case, foreign competition, or potential
competition, increased during the 1980s and the 1990s following the estab-
lishment of free trade between EFTA and the EC in the late 1970s, the
enlargement of the EC in the mid 1980s, and the unilateral trade liberalisa-
tion of the Multiﬁbre Agreement (MFA) in the early 1990s. The reduction
of trade impediments opened up for imports, and the import-penetration
ratio increased substantially between 1980 and 1998.
The penetration ratio
We deﬁne the textile and wearing apparel sector by the 2-digit NACE codes 17 and
The import penetration ratios are based on data originating from OECDs STAN
database. Consumption is deﬁned as domestic production less exports plus imports, and
the ratios in 1980 amount to 0.55 and 0.73 in the textile and the wearing apparel indus-