SOAS Research Online

Abstract

The Ghanaian textile sector, after decades of protection, is today operating in a free trade environment. This means that it is now having to compete with imports in terms of price and quality. Thus, in this study, it is argued that efficiency of production and cost cutting measures are important in aiding the textile sector in Ghana to become more competitive with imports. The efficiency and cost structure of the Ghanaian textile sector are therefore examined in an attempt to estimate the degree of technical inefficiency and the effect of cost cutting measure on the price of individual textile firms' output. Technical inefficiency is estimated using a stochastic frontier approach. The main findings are that firms' technical inefficiency declined to relatively low levels as they became more exposed to foreign competition. Also, the competitive position of Ghanaian textile firms, as far as competition with imports is concerned, can be greatly enhanced as a result of the various cost cutting measures looked at. This resulted in some firms achieving an export potential as a result of the potential reduction in their price. Finally, some policy options are explored. These include: change in tax policies; change in fuel water and power charges; a devaluation of the exchange rate; and incentives for capital investment.