Agribusinesses under siege: Firm-level innovation and productivity in adverse economic environments

The role of agribusinesses can be crucial in improving a country’s economic growth, diversification of revenue sources and contributing to its overall development goals. Previous research has focused on innovation in the first step of the agricultural value chain. Despite that, the off-farm segments may have equal weight in the performance of the entire chain; the food and beverage branch alone represents around 40-70% of the value-added cost. The aim of this paper is to analyze whether firm-level innovation improves agribusinesses’ economic performance. Our analysis contributes to the current academic debate providing evidence of the agribusiness sector within a hostile business environment, a recurrent issue in several developing countries. We use the World Bank Enterprise Survey (2010, 2016) of El Salvador and follow a sequential Crépon-Duguet-Mairesse (CDM) approach. Our results suggest that investment in innovation activities and the potential innovation outcomes are determined by both specific firm characteristics and the surrounding hostile environment. The agribusiness sector has not expanded its overall production frontier, and the expenditures on insecurity mitigation outweigh the economic gains from innovation outputs.