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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 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
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-193

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Keywords: international trade; low-wage country innovation;

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References

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  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  2. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," NBER Working Papers 9300, National Bureau of Economic Research, Inc.
  4. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 569-600, 05.
  5. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  6. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, 06.
  7. Wilfred J. Ethier & James R. Markusen, 1991. "Multinational Firms, Technology Diffusion and Trade," NBER Working Papers 3825, National Bureau of Economic Research, Inc.
  8. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  9. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  10. 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.
  11. Grossman, G.M. & Helpman, E., 1989. "Quality Ladders And Product Cycles," Papers 39-89, Tel Aviv.
  12. Gene M. Grossman & Elhanan Helpman, 1989. "Endogenous Product Cycles," NBER Working Papers 2913, National Bureau of Economic Research, Inc.
  13. Pol Antràs, 2003. "Incomplete Contracts and the Product Cycle," NBER Working Papers 9945, National Bureau of Economic Research, Inc.
  14. Dalia Marin & Thierry Verdier, 2003. "Globalization and the empowerment of talent," DELTA Working Papers 2003-32, DELTA (Ecole normale supérieure).
  15. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
  16. repec:hrv:faseco:4784029 is not listed on IDEAS
  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.
  18. John Sutton, 2004. "The auto-component supply chain in China and India: a benchmark study," LSE Research Online Documents on Economics 2292, London School of Economics and Political Science, LSE Library.
  19. 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.
  20. Diego Puga & Daniel Trefler, 2002. "Knowledge Creation and Control in Organizations," NBER Working Papers 9121, National Bureau of Economic Research, Inc.
  21. 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.
  22. repec:rus:hseeco:122439 is not listed on IDEAS
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Citations

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Cited by:
  1. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 569-600, 05.
  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.
  3. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, 05.
  4. 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.
  5. Marin, Dalia & Verdier, Thierry, 2009. "Power in the multinational corporation in industry equilibrium," Munich Reprints in Economics 19264, University of Munich, Department of Economics.
  6. 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.
  7. 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.
  8. Dobson, Wendy & Masson, Paul R., 2009. "Will the renminbi become a world currency?," China Economic Review, Elsevier, vol. 20(1), pages 124-135, March.

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