Finnish Trade Sector Shows Recent Productivity Gains – Future Success Hinges on Intangible Investments

We analyze value added, productivity, and tangible and intangible investments in the retail and wholesale trade sectors (hereafter, ”trade”) in four countries: Finland, Sweden, Germany, and the United States. Trade’s value added in Finland is relatively similar to that in Sweden. Labor productivity in the Finnish sector is higher than in Germany, but lower than in Sweden and the United States. Over the past five years, trade has been a bright spot in Finland’s productivity growth. Furthermore, the sector’s tangible and intangible investments show encouraging signs. We make two striking observations. First, as compared to its Finnish counterparts, the Swedish trade sector has invested significantly more in data and software as well as in innovative activity. Second, in Finland, over half of trade’s productivity growth stems from improved organization within and between firms, i.e., from total factor productivity. These observations suggest that while Finnish trade has reacted to major external changes, such as the rise of e-commerce, it has been more passive than its Swedish counterpart in capitalizing on emerging opportunities. In our view, Finland’s innovation policy needs to broaden its interpretation of intangible investments beyond R&D and to become more sector-agnostic. These changes would also support the future development of trade.