Comparative Advantage of Edible Oil Production in South Asia: An Assessment Using the Policy Analysis Matrix

Abstract

There is growing interest and efforts by the governments of South Asian countries to improve the competitiveness of domestic edible oil production with the objective of substituting for imports. This study evaluates and compares the comparative advantage and social profitability of the production of edible oils in Bangladesh, India, Pakistan, and Sri Lanka using the Policy Analysis Matrix (PAM) approach. The data required for this analysis were obtained from the Input-Output (I-O) table of the Global Trade Analysis Project (GTAP) Database (Version 10). Edible oils include animal fats, vegetable oils, margarine, and oil cake. Plant and animal sources, extraction, wearing, and electronic manufactures were treated as tradable inputs, while labor and capital were treated as non-tradable inputs. Results revealed that edible oils output is highly protected in Bangladesh while the inputs are highly protected in Pakistan. Production of edible oils, is a socially profitable activity in India, Pakistan, and Sri Lanka and they have a comparative advantage which is attributed to the low cost of non -tradable inputs. Conversely, edible oil production is not socially profitable in Bangladesh and the social cost of non-tradable inputs is higher than those of other inputs. It shows that Bangladesh does not have a comparative advantage in edible oil production. Inputs extracted from plant sources are highly taxed in Pakistan, and hence its comparative advantage is not revealed in export statistics. It is recommended that distortions in edible oil industry be removed to realize its comparative advantage.