Challenges and opportunities in the Australian textile industry: cost function insights

Traditionally one of Australia's most protected industries, the textile industry has recently experienced a substantial decrease in trade barriers with notable results. This article describes those effects and uses a cost function to explore scale economies and input relationships and their implications. The results include strong evidence of constant returns at current outputs. Output increases with substantial employment declines suggest technology changes, consistent with a negative time trend variable coefficient. The inputs are substitutes except for capital and domestic intermediate goods. The cross price elasticity of the quantity demanded of capital with respect to the price of imported intermediate goods was significant and indicated that a decrease in the price of outsourced intermediate goods would decrease the demand for domestic capital.