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One of the successful areas of product diversification was knit-RMG, which was outside the purview of MFA. Figure 1 shows that there have been two clearly discernible phases in the growth dynamics of the RMG sector: in the initial period it was the woven-RMG sector that dominated the structure of RMG exports, while in recent yeas it has been the knit-RMG sector which has demonstrated the

more

robust

growth.

The

growth

of

demand in the EU market and was also

knit-RMG stimulated

was spurred by a growing by domestic incentives in the

form of cash compensation and duty drawbacks

2001:4).

In addition,

the development of the

industry-related technical knit-RMG industry7.

and

(Battacharya and Rahman economic factors promoted

Despite the high growth rate of RMG exports, 27 percent per year over the period

between 1983/84 adverse impacts post-MFA trade

and 2003/04, the elimination of MFA was considered to have

on Bangladesh RMG industry in environment would pose a dual

the coming challenge to

years. The Bangladesh:

accessing restricted

raw materials at competitive prices and competing with hitherto countries in a quota-free context (Battacharya and Rahman 2001:12).

The major cause of concern lies in Bangladesh’s competitive strength to the limited backward linkages, particularly still heavy dependence

with respect on imported

fabrics, lower port facilities,

labour productivity, infrastructural constraints such as undeveloped corruption and administrative red-tape. All these negative elements

were

considered

to

have

imposed

tremendous

constraints

on

Bangladesh.

7 Dowlah (1998) lists several factors that contributed to the growth of knit-RMG. (1) The capital cost per unit of knitted output is considerably lower than for powerloom weaving. Unit machine costs are lower for knitting and space requirements per kilogram of output are modest. (2) The operating costs per units of knitting output are lower than for weaving. (3) Acceptable quality cotton knitting yarns are available from India and a few Bangladesh mills, and good quality acrylic knitting yarns can be obtained from countries like Korea, Taiwan and Indonesia (Dowlah 1998: 34-35).

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