Technological change and comparative advantage of the agricultural and food processing sectors Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/pn89d9000

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  • The composition of global agricultural trade is shifting from primary commodities to processed foods in terms of value and quantity. It is important to understand the linkages between agriculture and food processing to identify the sources of the structural change in agricultural trade. The question addressed by this research is whether increasing the level of technology in agriculture may bolster the comparative advantage of the food processing sector. To address the hypothesis, an empirical framework derived from neoclassical trade theory is fitted to panel data comprising of thirteen developed countries over a twenty-year time period. That is, the export share of GNP for each of the two sectors, agriculture and food processing, is specified as a function of respective factor supplies, and productivity growth. Since food processing sectors use agricultural products as intermediates, a technological linkage between the sectors is established through price. Results confirm that the increases in the level of technology in the agricultural sector (i.e. productivity growth) benefits the food processing sectors in the form of lower input prices. Thus, the comparative advantage of agriculture, obtained through productivity growth, is transferred to the food processing sectors as lower procurement costs, which increases the latter's ability to compete in the global market.
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