Trade and product innovations as sources for productivity increases: an empirical analysis

Commonly increases in total factor productivity (TFP) are associated with technological innovations measured by R&D expenditures. Empirical evidence seems to corroborate this relationship. However, in trading countries like the Netherlands, productivity increases, even in industry, can also be the result of innovations in the way transactions are managed. These innovations reduce transaction costs and exploit the welfare gains from (further) international division of labour. Such innovations are only partly included in R&D data. Consequently there is not much attention for these "trade innovations" - as we label them - in policy. In an empirical analysis this paper compares the influence of trade innovations with the influence of R&D expenditures on TFP in various industrialized countries. It appears that, at least in the Netherlands, trade innovations are as important for TFP as technological innovations which directly affect the efficiency of production, and which we label "product innovations".R&D; Innovation; Transaction costs; Total factor productivity