The cost of knowledge and productivity growth

Knowledge interactions play a crucial role to access and use external knowledge because of its strong tacit content. The use of external knowledge is necessary to complement the recombinant generation of new knowledge. When the knowledge interactions are effective, access to the external knowledge occurs at costs below the social value of knowledge, firms benefit from pecuniary knowledge externalities and are actually able to introduce productivity enhancing innovations. The empirical evidence on 20 OECD countries confirms that the growth of total factor productivity is negatively associated with the costs of knowledge. Total factor productivity thus increases faster where and when knowledge interactions are more effective and the costs of knowledge are lower.