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Wake up and smell the ginseng: The rise of incremental innovation in low-wage countries

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Author Info
Diego Puga
Daniel Trefler

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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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File URL: http://diegopuga.org/research/ginseng.pdf
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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-193.

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Length: 31 pages
Date of creation: 26 Oct 2005
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Handle: RePEc:tor:tecipa:tecipa-193

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Related research
Keywords: international trade; low-wage country innovation;

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Find related papers by JEL classification:
F1 - International Economics - - Trade

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Pol Antràs, 2005. "Incomplete Contracts and the Product Cycle," American Economic Review, American Economic Association, vol. 95(4), pages 1054-1073, September. [Downloadable!]
    Other versions:
  2. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany. [Downloadable!]
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  4. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April. [Downloadable!] (restricted)
  5. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Grossman, Gene M & Helpman, Elhanan, 1991. "Endogenous Product Cycles," Economic Journal, Royal Economic Society, vol. 101(408), pages 1214-29, September. [Downloadable!] (restricted)
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  7. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA. [Downloadable!]
    Other versions:
  8. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05. [Downloadable!] (restricted)
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  9. repec:rus:hseeco:122439 is not listed on IDEAS
  10. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July. [Downloadable!] (restricted)
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  11. Dalia Marin & Thierry Verdier, 2003. "Globalization and the empowerment of talent," DELTA Working Papers 2003-32, DELTA (Ecole normale supérieure). [Downloadable!]
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  12. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
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  14. Puga, Diego & Trefler, Daniel, 2002. "Knowledge Creation and Control in Organizations," CEPR Discussion Papers 3516, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Dalia Marin & Thierry Verdier, 2001. "Power Inside the Firm and the Market: A General Equilibrium Approach," Discussion Papers 109, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised Apr 2006. [Downloadable!]
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  16. 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. [Downloadable!]
  17. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 557-86, May. [Downloadable!] (restricted)
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  18. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November. [Downloadable!] (restricted)
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  19. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August. [Downloadable!] (restricted)
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  20. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marin, Dalia & Verdier, Thierry, 2007. "Power in the Multinational Corporation in Industry Equilibrium," CEPR Discussion Papers 6341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Diego Puga & Daniel Trefler, 2009. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Working Papers 2009-01, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales. [Downloadable!]
    Other versions:
  3. 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. [Downloadable!] (restricted)
  4. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA. [Downloadable!]
    Other versions:
  5. Wendy Dobson & Paul R. Masson, 2007. "Will the Renminbi Become a World Currency?," Working Papers Series 10, Rotman Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Dec 2007. [Downloadable!]
    Other versions:
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