Second-hand Clothing Donations

In the rich world, much of the clothes donated to local charities or thrift stores are actually sent to poor countries. I recently came across a paper that attempts to look at the effects of this on the domestic garment industries of recipient countries. This ties into the larger debate on in-kind aid, from food to Tom’s shoes. But I will not address that here. In general, the consensus in both theory and empirical studies seems to be that just giving money to the poor is best, conditional cash transfer programs do well too. So generally, just give money and let adults make their own decisions.

But, there is a functional purpose of donating still usable but unwanted clothing, it increases the efficiency of resource use, despite looking worse on GDP figures. And Second Hand Clothes (SHC) are only charity for the organization that receives them in the rich world. That charity then bears the transactions cost of gathering and sorting through the clothes. They take the best clothes to donate, or in the case of thrift stores, sell. The rest is given to a for-profit exporter, who must bear the transactions cost of gathering, and sorting the clothes and finding buyers abroad. The clothes are bought by importers in poor countries and sold on local markets. This means the clothes are only sold in developing economies if they can compete on price with other options. Anyway, the author finds:

"used-clothing imports are found to have a negative impact on apparel and textile production in Africa, explaining roughly 40% of the decline in African apparel production and roughly 50% of the decline in apparel employment."

This is important because garment production has repeatedly been a step on the development ladder for poor countries, such as China and Bangladesh[1]. The logic being that hobbling domestic garment industries in poor countries can block their path to development. The author uses an instrumental regression technique to estimate the effect of SHC on domestic garment production and employment. When done correctly, the technique isolates the effects on the local garment industry to only SHC imports. For example, controlling for the effect of cheap imports from China.

However, this is not a per-se finding of net harm[2]. First, as the author plainly states, the paper looks only at the effect on the domestic garment industry, not the net effect on employment and income. Importers and sellers of SHC create local jobs that are not considered in the paper. The paper mentions that the garment industries are a very small proportion of GDP in the countries examined. This fact, and that the author found data on employment levels, leads me to believe he is looking at formal sector employment only. Most garment workers are in the informal sector, which the state fails to reliably measure. The result would be that the paper misses the majority of the garment industry. The paper also looks at the period 1980 – 2000, during which time local garment industries were declining and growth stagnating; a correlation that supports concerns of a blocked development path. The cut off just misses the recent impressive economic growth in many areas of Sub-Saharan Africa. This growth has occurred despite increasing SHC imports.

And then there is this statement in the paper that any economist knows to be true:

"In an open economy...the used-clothing imports will not affect domestic production, as domestic production is based on comparative advantage…and worldwide, rather than domestic, demand"

Ah! So it’s maybe harmful only if the receiving country has terrible economic policy. Sub-Saharan African countries have made a lot of progress in opening up their economies in the past couple decades, a process mostly missed by the paper’s time horizon. Either way, should we really not reduce waste in the rich world and benefit poor consumers because of that? And could a country possibly develop anyway with bad economic policy and more expensive clothing that benefits relatively better off producers?

That reminds me of the Import Substitution Industrialization (ISI) policies of Latin America in the latter half of the 20th century. Their intent was to replace foreign imports with domestic production to develop domestic manufacturing. This was accomplished through import tariffs and quotas that made foreign products more expensive and less available. The result was that domestic consumers paid more for lower quality. This benefited manufacturers with cozy relationships to policy makers at the expense of poorer domestic consumers. They were a failure and ended with a debt crisis. It’s true that Latin America experienced growth under the policies, higher than it experienced for almost two decades after ditching them. But it’s also true that a hangover is caused by drinking the night before[3].

At the same time, Latin America was being passed economically by East Asia, which developed through export led industrialization and relative openness to foreign goods. This, I think, is key. East Asia developed by producing cheap garments (and many other cheap labor intensive goods) by exporting them to the world market, rather than producing for domestic consumption. There is a lot of competition right now for cheap garment exports, and Africa generally has large logistic obstacles relative to East Asia. But their best strategy is to have more open economies and produce what they have a comparative advantage in. And let consumers benefit from increased purchasing power if imported goods are cheaper and better[4].

This is an intuitive result, it would be quite contrarian if it were the case that the world would be better off with rich consumers being more wasteful, and poor consumers facing higher prices.







1. It was also a step on the ladder of development in the past for poor countries such as the UK and US. Manhattan used to be stuffed full of unsafe low wage garment shops for example.

2. In no way do I mean any of this as a criticism of the author or his methods. In researching this I’ve seen a few instances of people taking the quote above and running with it. In the paper itself the author plainly lays out a more nuanced view, particularly since the paper looks only at the effect on local garment production and not an economy as a whole. Nowhere does the author state that SHC is on net bad for developing economies. If you actually read the paper, it is clear that is beyond the scope of the paper. 

3. To be fair, it's unusual for an economic hangover from bad policy should last that long. One reason is that many Latin American countries had large dollar denominated debt. The result was that using monetary policy to combat recessions would depreciate the currency if effective, which would increase real debt burdens. There are many other reasons, and of course the rich world hasn't been innocently sitting by in any poor country's history. Basically, it would be a mistake to point to higher growth under ISI than the two decades after it. ISI countries cashed in on an unsustainable system that fell apart and put downward pressure on economic growth for some amount of time afterwards. And going back to ISI policies would not have undone the harm.

4. This is a trend currently underway in much of the developing world. Also the best thing to reduce poverty throughout the world is freer migration. The entire world would benefit enormously from more open markets to labor.