Transaction costs at macro-level

In spite of problems of definition and measurement some attempts have been made to estimate the size of transaction costs at the macro-level. Following the methodology of North and Wallis (1986), De Vor (1994) asserted that in 1990 total transaction costs in the Dutch economy amounted to almost 53% of GDP. It implies that more than half of value added in production in the Netherlands relates to conducting transactions. In the period 1960-1990 total transaction costs increased with about 9 %-points. This can be ascribed completely to an increase in the private sector. According to De Vor transaction costs in the private sector were over 5 times higher than in the public sector in 1990. Van Dalen and Van Vuuren (2005) measure by means of occupational data that in the Netherlands approximately 25% of workers is employed in transaction jobs, and 29% if one includes transport tasks. However, these occupational data do not take into account time spent on coordination by production workers. Klamer and McCloskey (1995) note that one quarter of the GDP is related to persuasion, i.e. talks to make “real production” possible. In their survey on “trade costs”, Anderson and Van Wincoop (2004) illustrate the size of these trade costs by means of the tax equivalent of these costs: what would be the tax tariff on direct production costs if all trade costs where regarded as taxes – from a theoretical point of view trade costs have the same distortional effects on production as taxes. Anderson and Van Wincoop have a rather broad definition of trade costs so that it comprises most of the transaction costs discussed earlier in this section. Their main finding is that trade costs are large and variable. The example of the Barby doll illustrates these large costs. The direct production costs of the doll are $1, but they are sold in the US for about 10$. So the costs of transportation, marketing, wholesaling and retailing have an ad valorem tax equivalent of 900%. In their own (rough) calculations Anderson and Van Wincoop arrive at an estimate of the tax equivalent of “representative” trade costs for industrialized countries of 170%. The number breaks down as follows: 21% transportation costs, 44% border related trade barrier costs and 55% retail and wholesale distribution costs (2.7 = 1.21*1.44*1.55).

'In the global economy with ongoing fragmentation of production, keeping transaction costs low through good transaction management becomes more and more important'


Purpose of the research programme

All in all this research programme seeks to acquire knowledge on how to exploit the challenges of globalisation and ICT for a further increase in the division of labour and therefore for more international welfare. Therefore, it is important to know how knowledge investments in the management and trade functions enable us to proactively maintain comparative advantages in organizing processes of buying, producing and selling goods and services. By doing so it is not a necessary condition that production itself takes place in the home country of (industrial) firms and companies. This is in line of how firms in the industrialized world operate and create value. In this respect the important international role of the financial sector should be stressed. It seems that here there are still ample possibilities for innovations that reduce transaction costs. More knowledge on the dynamics of these innovations and their implications for trade, growth and welfare is required. This is a major purpose of this research programme. 

                                                                           RITM 2
                 Knowledge on value creation through transactions in the era of globalization