Comparative advantage of Vietnam's rice sector under different liberalisation scenarios: a policy analysis matrix (PAM) study

Abstract

The rapidly changing global economic environment and domestic economic reforms in Viet-nam have brought the issue of comparative advantage of the rice sector to the forefront. In recent years, Vietnam has had to compete in an increasingly competitive rice export market. This paper examines the fluctuations in the comparative advantage of Vietnamese rice production based on different scenarios of trade liberalisation and economic reform in Viet-nam. To do this, a Policy Analysis Matrix (PAM) was used in conjunction with an econo-metric model. The study involved simulation of a large number of scenarios of trade liberalisation and macroeconomic reform, using variations in a single factor and in a group of factors such as product price and input costs, i.e., the price of imported fertilisers, land, water and labour costs, etc. The empirical results show that in 1998 (the baseline scenario), the comparative advantage in rice was relatively high and that the use of domestic resources ? i.e., land, labour and water ? was efficient in economic terms. The estimated DRC elasticities in respect of the world rice price and the shadow exchange rate in 1998 showed a considerably improved com-parative advantage. The estimated DRC elasticities for land rent, the social costs of labour, the import price of fertilisers and irrigation water charges were small in absolute values indi-cating small and negative impacts on comparative advantage with a rise in these prices. The results of sensitivity analyses revealed that the comparative advantage of rice is very sensitive to changes in its export price. In addition, the exchange rate and land rent are also important determinants of the rice sector?s comparative advantage in Vietnam. Other empirical results show that Vietnam is still likely to retain its comparative advantage in rice production in the next decade; however, its comparative advantage might be seriously affected or even dis-appear entirely if Vietnam is exposed to a number of unfavourable economic conditions simultaneously. The major recommendation of this paper is that production should be diversified, with appropriate agricultural policy support, within a broader framework of macroeconomic transformation and trade liberalisation.