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Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries

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  • Diego Puga
  • Daniel Trefler

Abstract

Increasingly, a small number of low-wage countries such as China and India are involved in innovation -- not `big ideas' innovation, but the constant incremental innovations needed to stay ahead in business. We provide some evidence of this new phenomenon and develop a model in which there is a transition from old-style product-cycle trade to trade involving incremental innovation in low-wage countries. We explain why levels of involvement in innovation vary across low-wage countries and even across firms within each low-wage country. We then draw out implications for the location of production, trade, capital flows, earnings and living standards.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11571.

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Date of creation: Aug 2005
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Publication status: published as Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.
Handle: RePEc:nbr:nberwo:11571

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  17. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
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  19. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(2), pages 569-600, 05.
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Citations

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Cited by:
  1. Antràs, Pol & Rossi-Hansberg, Esteban, 2008. "Organizations and Trade," CEPR Discussion Papers 6965, C.E.P.R. Discussion Papers.
  2. Dobson, Wendy & Masson, Paul R., 2009. "Will the renminbi become a world currency?," China Economic Review, Elsevier, vol. 20(1), pages 124-135, March.
  3. Amelia Santos-Paulino & Guanghua Wan, 2011. "Southern growth engines and technology giants: introduction," Economic Change and Restructuring, Springer, vol. 44(1), pages 1-5, April.
  4. Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.
  5. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  6. Dalia Marin & Thierry Verdier, 2009. "Power in the multinational corporation in industry equilibrium," Economic Theory, Springer, vol. 38(3), pages 437-464, March.
  7. Lee Branstetter & C. Fritz Foley, 2010. "Facts and Fallacies about U.S. FDI in China," NBER Chapters, in: China's Growing Role in World Trade, pages 513-539 National Bureau of Economic Research, Inc.
  8. Lee Branstetter & C. Fritz Foley, 2007. "Facts and Fallacies about U.S. FDI in China," NBER Working Papers 13470, National Bureau of Economic Research, Inc.

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