Location, profitability, and international trade liberalization in European textile-clothing firms

• Published in: Economic modelling 2023-12, Vol.129, p.106563, Article 106563
• Main Authors: Puig, Francisco, Debón, Ana, Cantarero, Santiago, Marques, Helena
• Format: Article
• Language: English
• Subjects: European firms; Liberalization; Location; Manufacturing strategies; Textile-clothing industry
• ISSN: 0264-9993
• DOI: 10.1016/j.econmod.2023.106563

In the European traditional manufacturing sector (TMS), there is a vigorous debate concerning the real impact of international trade liberalization on firm profitability. Based on firm-level data from five European countries, we analyze how location, productive subsector, and firm characteristics are associated with the profitability of the European textile-clothing industry in the pre- and post-trade liberalization period. Our results reveal that the externalities derived from geographical proximity were diluted after international trade liberalization. Moreover, larger companies and those that focus on high value-added products, as represented by Northern European firms, show a stronger association with profitability. Accordingly, this observation calls into question the future of some TMS activities in a globalized world. Therefore, manufacturing strategies and industrial policies should be location- and context-specific. •Changes in ROA before and after international trade liberalization are analyzed.•Differences were found in the European textile-clothing industry for the period analyzed.•Centrifugal effects outweighed centripetal in the profitability of clustered firms.•Belonging to value-added subsectors and firm size are essential factors to survive.•Manufacturing strategies and industrial policies should be location and context-specific.