Bibliographical Note to Chapter 2

The policy analysis matrix approach to agricultural policy analysis was originally developed in 1981 by the authors and several colleagues to establish a framework for studying changes in agricultural policies in Portugal. See Scott R. Pearson et al., Portuguese Agriculture in Transition (Ithaca: Cornell University Press, 1987).

The PAM approach, like all methodologies, has many antecedents. Its links to the extensive literature on social benefit-cost analysis (SBCA) were made apparent in this chapter. Applications of these analytical techniques to agricultural investment projects are discussed in J. Price Gittinger, Economic Analysis of Agricultural Projects, 2d ed. (Baltimore: Johns Hopkins University Press, 1982), which also contains an extensive bibliography of the theoretical literature on SBCA. Because the PAM is a way of carrying out both efficiency and policy analysis, the approach also has antecedents in the literature on international trade policy. That literature is summarized, with full listings of citations, in two chapters of Ronald W. Jones and Peter B. Kenen, eds., Handbook of International Economics (Amsterdam: North-Holland, 1984): Anne O. Krueger, "Trade Policies in Developing Countries," pp. 519-69; and Robert E. Baldwin, "Trade Policies in Developed Countries," pp. 571-619.

A methodological breakthrough underpinning the eventual development of the PAM was the invention of the domestic resource costs (DRC) approach for measuring social profitability. The DRC was developed independently by Michael Bruno in Israel and Anne Krueger in the United States; early publications demonstrating its use are Michael Bruno, "The Optimal Selection of ExportPromoting and Import-Substituting Projects," in Bruno, Planning the External Sector: Techniques, Problems, and Policies (New York: United Nations, 1967);

and Anne O. Krueger, "Some Economic Costs of Exchange Control: The Turkish Case," Journal o f Political Economy 74 (_{October 1966): 466-80.} The early DRC literature is reviewed in Scott R. Pearson, "Net Social Profitability, Domestic Resource Costs, and Effective Rate of Protection," Journal o f Development Studies ₁₂ (July _{1976): 320-33.}

During the _1970s and the first half of the _1980s, a series of detailed empirical studies of comparative advantage in agriculture, based in part on the DRC method, was carried out by faculty members and graduate students at the Food Research Institute, Stanford University, and by their colleagues from other institutions. Some of the results of these investigations are reported in Scott R. Pearson and John Cownie, Commodity Exports and African Economic Development (Lexington, Mass.: D. C. Heath, _1974); Eric Monke, Scott R. Pearson, and Narongchai Akransee, "Comparative Advantage, Government Policies, and International Trade in Rice," Food Research Institute Studies 15 _{(1976): 257-83;} Scott R. Pearson et al., Rice in West Africa: Policy and Economics (Stanford, Calif.: Stanford University Press, _1981); Walter P. Falcon et al., The Cassava Economy of Java (Stanford, Calif.: Stanford University Press, _{1984); C.} Peter Timmer, ed., The Corn Economy of Indonesia (Ithaca: Cornell University Press, _1987); and Pearson et al., Portuguese Agriculture_. Each volume contains discussions of methods and applications as well as citations of relevant studies.

The principal motivation for combining the DRC approach with measures of policy transfers is drawn from W. M. Corden, Trade Policy and Economic Welfare (Oxford: Clarendon Press, _1974). The distinction between efficient and distorting policy and the definition of divergences as including the effects of distorting policies and uncorrected market failures are two central insights in that book. The empirical approximation of the effects of policy being the difference between actual market (private) and efficiency (social) valuations was first made in the study of rice in West Africa, Pearson et al., Rice in West Africa_. The closest forerunner to the complete PAM approach is the method used in William D. Ingram and Scott R. Pearson, "The Impact of Investment Concessions on the Profitability of Selected Firms in Ghana," Economic Development and Cultural Change 29 _{(July 1981): 831-39.}

A standard reference on the theory of effective protection is W. M. Corden, The Theory of Protection (Oxford: Oxford University Press, _1971). A useful updating of that work, complete with bibliographic listings, is W. M. Corden, "Effective Protection Revisited," in Corden, Protection, Growth and Trade: Essays in International Economics (Oxford: Basil Blackwell, _{1985), pp. 14153.}

Dynamic comparative advantage is discussed in two early papers: Hollis B. Chenery, "Comparative Advantage and Development _Policy," American Economic Review 51 (March _{1961): 18-51;} and Michael Bruno, "Development Policy and Dynamic Comparative Advantage," in The Technology Factor in International Trade_, ed. Raymond Vernon (New York: Columbia University

Press, 1970), pp. 27-64. An effort to measure dynamic comparative advantage in agricultural systems is reported by Roger Fox and Timothy J. Finan, "Patterns of Technical Change in the Northwest" and "Future Technical and Structural Adjustments in Northwestern Agriculture," in Pearson et al., Portuguese Agriculture_{, pp.} 187-220.