This paper analyse the changing comparative advantage and competitiveness of cotton over time and its implications on the cotton sector and all the stakeholders in Pakistan, in an era of globalization. The data collected by the Agricultural Price Commission (APCom) on the cost of production of seed cotton for the period of 2002-2007 was used for the analysis. The financial and economic budgets were prepared separately to estimate profit-ability, value addition, comparative advantage and competitiveness of the cotton crop. The Policy Analysis Matrix (PAM) was the basic analytical framework. Policy distortions in the input and output market were also analysed through Nominal Protection Coefficient (NPC) and Effective Protection Coefficient (EPC). The Domestic Resource Cost (DRC) ratio was selected as a measuring tool for comparative advantage. The risk analysis was further carried out on the basis of risk prices of fertilszer (DAP and Potash) and cotton to assess the comparative advantage of the country in cotton production. The results show that Pakistan has a comparative advantage in the production of cotton at export parity price and can maintain competitiveness in the world cotton market. The textile industry of Pakistan can rely on cotton growers to supply sufficient amounts of raw material at competitive prices. In the free trade scenario, Pakistan is likely to maintain its competi-tiveness and gain more in the cotton market provided the developed countries follow the rules of the WTO. Ensuring quality improvement through efficient utilisation of all re-sources is essential to complete the value chain of the cotton sector and remain competative under different circumstances.
