Innovation and Export Performance of the Food Processing Sector: Opportunities and Limitations

Abstract

Issue The extent of globalization is incessantly amplified through multilateral and regional trade l iberal ization, reduction in c o m m u n i c a t i o n a n d t r a n s p o r t a t i o n c o s t s , a n d spectacular surge in Foreign Direct Investment (FDI). This c o n t i n u o u s l y e v o l v i n g international economic landscape is putting food processing firms at the competition edge. Innovation is one principal avenue for firms to maintain competitiveness and to ensure greater international market share. It is expected that private innovation efforts in the food processing sector, such as developing new processed food varieties and implementing strategies to reduce transaction costs along the supply chain, would enhance exports. In a d d i t i o n , t h e i m p a c t o f innovat ion in the pr imary agricultural sector could have significant impact on the trade p e r f o r m a n c e o f t h e f o o d processing sector. In other words, innovat ion in the pr imary agricultural sector is expected to be vertically transmitted to the downstream food processing sec tor. Under s tand ing the implications of innovation in the food processing sector and in the primary agricultural sector on international trade in processed food products is essential for designing policies that are i n t e n d e d t o e n h a n c e t h e international performance of the food processing sector. Primary empirical results in Ghazalian and Furtan (2007) indicate that innovation, represented by Research and Development (R&D) expenditure in the food processing sector, has an overall net positive effect on the export p e r f o r m a n c e o f t h e f o o d p r o c e s s i n g s e c t o r o f t h e Organization for Economic Cooperation and Development (OECD) countries. Ghazalian and An ERCA Network