Technical change and research and development in food processing

Scope and methods of study. This study determines research and development spillover effects from agriculture to food processing; measures returns to research and development spending in food processing and evaluates economic development impacts from increased efficiency in the food and kindred products sector for Oklahoma. The research and development (R&D) spillover effects between agriculture and food processing in terms of unit cost reduction and increased factor demand were modeled in a three-sector stochastic trend model. The deflated research and development expenditure in each sector was used as an imperfect indicator of the unobserved technical change. The input prices were augmented for quality changes. The translog cost function was used to represent the share equations and the augmented input prices. A regional computable general equilibrium model consisting of three household income groups and thirty sectors was developed to evaluate short and long run state economic development impacts from increased efficiency in food processing on household welfare, gross state product, employment and commodity and factor markets.; Findings and conclusions. Total factor productivity of aggregated food processing sector grew by 35 percent from 1958 to 1994. Adjusted for quality, technological change in U.S. food processing has been labor and capital neutral and material saving. Spillovers from the aggregated agriculture to food processing have been labor and capital using and material saving. There is a significant substitutability between materials and equipment capital and materials and labor. The hypothesis of constant returns to scale is not rejected at the five percent level. The private rate of return to R&D capital in food processing was 11.6 percent over the sample period. State economic development impacts of increased efficiency in food processing include wage rate increase, labor and capital in-migration, and increases in gross state product, employment, and household income. Welfare increases occur in all household income groups with the greatest increase in the medium income group and lowest in the low income group. The food processing industry and ultimately the state of Oklahoma benefits from development of this sector.