Determining comparative advantage through DRC (Domestic Resource Cost) analysis: Guidelines emerging from CIMMYT's (Centro Internacional de Mejoramiento de Maiz y Trigo) experience
1990
Morris, M.L. (CIMMYT, Mexico, DF (Mexico). Economic Program)
Knowledge of comparative advantage is important for developing countries, because potential welfare gains from specialization and trade can be used to foster economic growth. One practical difficulty with using comparative advantage for designing agricultural policies or allocating research resources is that comparative advantage is difficult to determine empirically. The domestic resource cost (DRC) framework of analysis offers a way of empirically measuring comparative advantage by generating quantitative indicators of the efficiency of using domestic resources to produce a given commodity, as measured against the possibilities of trade. These quantitative indicators provide an empirical measure of comparative advantage. At the same time, that analytical framework allows the distortionary effects of government policies to be measured. The paper first describes the basic DRC methodology, using examples drawn from a series of case studies carried out over the past five years by the CIMMYT Economic Program. This step-by-step description of the DRC methodology is a concise, non-technical guide for use in conducting applied comparative advantage studies and addresses a number of practical and conceptual problems commonly encountered. The paper then summarizes a number of lessons learned over the years at CIMMYT and evaluates the usefulness of the DRC framework as a tool for applied policy analysis and research resource allocation.
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