EE can continue without subsidy. Kinked rather than continuous efficiency improvement seems to better explain the IS and EE of textiles in the Asian developing countries.

It is not easy to substantiate this kinked efficiency improvement because of the lack of reliable data on productivity and cost throughout the IS and EE stages. However, Yamazawa and Tanbunlertchai (1985) provided supporting evidence for behavioral changes of Thai textile firms as they began the process of EE, based on their interview survey of major textile firms in Thailand in the late 1970s. In Thailand no firms exported in 1970. By 1978 overall export-output increased to more than 30 percent but the ratio differed greatly among firms.

Product types of individual firms were found to be the most crucial factor affecting the export ratio, a finding that is consistent with difference in comparative advantage among product categories. The export ratio is larger for cotton and polyester-cotton fabrics because of big domestic market, enabling larger scale of production. It is smaller for polyester-rayon and synthetic yarn fabrics because of the small domestic demand and the resulting smaller scale of production, along with increased difficulty in technology transfer.

However, among firms with the same products the principal determinant was identified to be the ability to make changes in production and management techniques. The shift from domestic sales to export and the establishment of marketing channels abroad requires such changes, a shift not every firm can make. Standards of quality, packaging, and timely delivery are usually higher for exports than for domestic sales. Textile finish, for example, is classified into categories -- A+, A, B, and C -- according to the number of frays and streaks. Normally only A+ and A goods can be exported; B goods are sold locally, and C goods are abandoned. Quality control inspection is a prerequisite for exports but the distinction between A and B goods is less important when production is only for domestic sales. Of the firms interviewed, those that exported imposed stricter control to maintain quality when they began exporting regularly. Changes in the product mix and concentration on fewer items enabled them to realize a scale economy. Marketing and production control were integrated more closely to permit quicker response to changes in world demand.

All these changes in production and management strategies were introduced on a continuing basis, and greater efforts were made in these areas by the firms that achieved a greater export ratio. These changes in production and management strategies seem to have contributed to efficiency improvement at the EE stage, although this is difficult to quantify. Nevertheless, the pattern of kinked efficiency improvement is a rational one for contemporary developing countries to follow to achieve CPC.

Not every industry can pass through IS to EE. Many, such as metals, machinery, and chemical industries have not exported after achieving IS under protection. It was partly because they are protected and partly because they are constrained by small-sale production due to the small size of domestic demand. The formation of large scale regional markets through regional integration agreement will help promote CPC development of those industries.

It is to be noted, however, that the essence of the CPC development is efficiency improvement and the acquirement of competitive edge at markets, which is observed commonly in Japan and the Asian NIEs. In this sense the CPC continues to be a rational pattern of industrial development in different markets and technology conditions. It will be