This paper assesses technical efficiency and profitability of the knitwear industry in
Bangladesh given the sector’s role in poverty reduction. While stochastic frontier
analysis was invoked to assess the technical efficiency, three alternative measures viz.
rate of return, total factor productivity and Solow residual were used to gauge the extent
and determinants of the profitability of the industry based on firm-level data collected in
2001. The estimation results indicate high profitability of the knitwear firms. The
dynamic development of the industry entailed great diversity in efficiency in
comparison with the garment industry of other developing countries. While there is
significant scale effect in profitability and productivity, no supporting evidences were
found for positive impacts on competitiveness of industrial upgrading in terms of usage
of expensive machines and vertical integration and industrial agglomeration.