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Economic Incentives and Comparative Advantage in Philippine Agriculture: The Case of the National Cotton Development Program
Thesis Abstract:
The impact of broad government policies and specific programs on the incentive structure in the cotton industry and the relative competitiveness of domestically-produced cotton with respect to imported cotton were studied.
Results indicated that despite a clear positive protection conferred by government policies on the cotton industry, the protection policies on cotton farmers' output and value added tended to be negative, indicating that cotton farmers had been penalized by the government's protection system. This penalty was found to be more severe than that imposed by the price policy on food crops but slightly higher than that on export crops.
The analysis further disclosed that the country exhibited a comparative advantage in local cotton prodution, underscoring the industry's relative efficiency in saving foreign exchange for the economy. Of various parameters in cotton production, world cotton price and seedcotton yield per unit area were found to strongly influence the country's comparative advantage in the crop's domestic production.
The study concluded with a call for a further exploitation of the country's comparative advantage in cotton production. However, it was stressed that to realize this, a more favorable proce policy on seedcotton has to be instituted so that the relatively new crops could effectively compete with traditional alternative crops. This policy redirection would tend to further offset the acute production disincentive potentially posed by violent seedcotton yield fluctuation experienced by the national cotton development program in recent years.