A ray of hope? Another look at the Italian textile industry

Despite increasing competition from newly industrializing countries, Italy’s textile industry has continued to be an important contributor to the domestic economy. Many observers attribute this resilience to the industry’s focus on quality. Here, we take note of that view but also examine production and cost relationships to explore the existence of returns to scale and the interrelationships among inputs to gain additional insights about the future prospects for this industry. The findings are consistent with constant returns to scale and a substitute relationship between all input pairs except for domestic capital and foreign intermediate goods. The results also suggest some increasing flexibility in the labor market, perhaps including informal sector arrangements, greater responsiveness of labor demand to the price of capital, and more international production sharing arrangements. An increasing elasticity over time of the demands for domestic capital and domestic intermediate goods with respect to the price of foreign substitutes was also observed. Since further economies of scale do not exist, maintaining the Italian textile industry’s reputation for outstanding quality will likely be an important survival strategy for some products. For others, production sharing may be necessary to maintain international competitiveness. Copyright Springer-Verlag Berlin Heidelberg 2014