Comparative Advantage and Cost Efficiency of Rice-Producing Farms in Bangladesh: A Policy Analysis

This study aims to investigate whether Bangladesh rice still has comparative advantage if fertilizer subsidy is lifted up, and to what extent the reduction of cost inefficiency raise comparative advantage. For that purpose, we calculate “Domestic Resource Cost (DRC)” as an indicator of comparative advantage, and estimate “cost inefficiency indicator” applying stochastic cost efficiency approach, using Bangladesh Integrated Household Survey data. Based on these indicators, we estimate the impacts of abolishing fertilizer subsidy program and improving cost efficiency on comparative advantage of Bangladesh rice. The results of analyses show; 1) dry season rice has comparative advantage while wet season rice does not, if fertilizer subsidy program is abolished; 2) if fertilizer subsidy is abolished, comparative advantage in overall rice production vanishes; 3) improvement of cost efficiency has positive effects on retrieving comparative advantage even if fertilizer subsidy program is abolished. These findings suggest that there is a scope for Bangladesh to increase global competitiveness by increasing cost efficiency of the rice farms targeting gradual reduction of input subsidy.