An Econometric Model of the Textile Industry in the United States1

T HE model presented in this paper is a system of recursive linear regression equations, the parameters of which are estimated from monthly series of data covering the period, January, 1951, through December, 1962. The parameters relate certain exogenous and predetermined endogenous variables to apparel demand, apparel output, textile demand, textile output, and employment, earnings, prices, profit, and investment for the textile industry. Elsewhere [9] the authors use this model to simulate the aggregate behavior of the industry for the 1951-1962 period and for 1963 through 1964. There are a number of problems and characteristics which are unique to textile manufacturing in the United States. They are frequently brought to the attention of the public as a result of the industry's extreme sensitivity to such things as changes in tariffs, changes in wage levels, and changes in government price policies on cotton. Imports of textiles, for example, have been troublesome to American textile producers due to low wages abroad and the development of a large and efficient productive capacity in many foreign countries. This situation has been the subject of considerable controversy in recent months due to the expiration of the Long Term Arrangement on trade in cotton textiles [7, 21]. Related to the import problem is the problem of cotton prices. The introduction of one-price cotton in April, 1963, ended a dual-price system, in effect since 1956, which had caused producers of the United States to pay higher prices for inputs than foreign producers. In addition to these economic variables which are subject to control largely by public policy or by bargaining, there are other characteristics of the industry which have contributed to its historical instability. Evidence of this has been the two-year textile cycle which persisted in the output of textile mill products, even in spite of a relatively stable end-use demand.2 Several previous studies have noted the damaging effect of this cyclical pattern upon the industry [1, 6, 24, 25]. Stanback's analysis of the textile cycle [14, 15] provided reasons for this cyclical pattern, and also provided measures of the cycle for the period 1919 through 1956. In developing an econometric model of the textile industry it was necessary to determine whether the cyclical behavior, which influenced this industry in earlier years, still prevailed. Preliminary investigations led the authors to the conclusion that there had been basic changes in the nature of the industry, such as increasing concentration, diversification of inputs, wider ownership, and more scientific management which had led to greater stability.3 These are among the features of the United