After providing information about the global importance of cotton as a textile and China’s and Australia’s contribution to global cotton production, this paper examines and compares trends in the time-series of cotton production of China and Australia for the period 1980-2007. In doing so, it takes account of changes in the area planted with cotton and its yield. Correlation estimates and decomposition analysis are used to determine the relative contribution to variations in the total output of cotton of changes in the total area planted with cotton and its yield in both countries. These relative contributions are found to be quite different for Australia and China. In addition, there is a comparative analysis of fluctuations in the production of cotton, in the area planted with cotton, and its yield for both countries. The level of Australian cotton production is shown to be much more volatile than China’s principally because the area planted with cotton in Australia is so variable. Fluctuations in yield are found to be declining both for Australia and China. Theories and associated empirical results that help to explain cotton supply responses to the relative prices of crops (and also variations in the area planted with cotton) in China and Australia are outlined and discussed. A new theoretical model is developed to help explain Australia’s changing level of cotton production.


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