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Comparative Advantage of Major Crops Production in Punjab: An Application of Policy Analysis Matrix

Muhammad A. Quddus () and Usman Mustafa ()
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Muhammad A. Quddus: Punjab Economics Research Institute, Lahore, Pakistan.

Lahore Journal of Economics, 2011, vol. 16, issue 1, 63-94

Abstract: This study uses data from 1999/2000 to 2004/05 to determine the relative efficiency of major crops (wheat, rice, sugarcane, and cotton) in Punjab (Pakistan) and their comparative advantage in international trade as measured by economic profitability and the domestic resource cost (DRC) ratio. An economic profitability analysis demonstrates that Punjab has a comparative advantage in the domestic production of wheat for self-sufficiency but not for export purposes. In basmati production, Punjab has a comparative advantage, and increasing Basmati production for export is a viable economic proposition. The nominal protection coefficient (NPC), effective protection coefficient (EPC), and DRC for Irri rice are more than 1: the given input-output relationship and export prices do not give Punjab a comparative advantage in production of Irri for export. Sugarcane growers did not receive economic prices (i.e. prices reflecting true opportunity costs) during 2001/02 and 2002/03 in an importing scenario, while in 2003/04, the NPC was 1.02, indicating positive support to sugarcane growers. The NPCs estimated under an exporting situation range from 1.33 to 1.99, indicating that the prices received by growers are higher than the export parity/economic prices. This is also an indication that sugarcane cultivation for exporting sugar is not feasible in terms of economic value. The NPCs for cotton under an importing scenario were less than 1 while under an exporting scenario were either close to or greater than 1, implying an expansion in cotton production as imports have been more expensive than domestic production.

Keywords: Crops; comparative advantage; domestic resource cost; policy analysis matrix (PAM); Pakistan. (search for similar items in EconPapers)
JEL-codes: Q17 Q18 (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:lje:journl:v:16:y:2011:i:1:p:63-94