Trade, Transaction Costs and TFP: Evidence from Tunisia and Egypt

Increases in total factor productivity (TFP) are commonly associated with accumulation of knowledge through technological innovation and investment in R&D. However, organizational innovations also improve productivity through the reduction of transaction costs. The main purpose of the paper is to assess the effect of trade innovations (aiming at decreasing transactions costs related to trade), labor qualification levels (or R&D) on the growth rate of TFP in Tunisian and Egyptian manufacturing industries. Empirical results show that trade innovations reduce transactions costs and lead to increases in TFP. Trade innovations and labor qualifications are more significant than investments in R&D. However, for the case of Tunisia, this growth rate is positively associated to trade innovations when the reduction of transaction costs is important enough.  

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