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

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  • Puga, Diego
  • Trefler, Daniel

Abstract

Increasingly, a small number of low-wage countries such as China and India are involved in innovation - not the `big ideas', but the constant incremental innovations needed to stay ahead in business. We provide some evidence of this 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 in each low-wage country. We then draw out the implications of this for the location of production, trade, capital flows, earnings and living standards.

Suggested Citation

  • Puga, Diego & Trefler, Daniel, 2005. "Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries," CEPR Discussion Papers 5286, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5286
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    Cited by:

    1. Dalia Marin & Thierry Verdier, 2009. "Power in the multinational corporation in industry equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 437-464, March.
    2. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, May.
    3. Lee Branstetter & C. Fritz Foley, 2010. "Facts and Fallacies about US FDI in China," NBER Chapters, in: China's Growing Role in World Trade, pages 513-539, National Bureau of Economic Research, Inc.
    4. de Boer, Paul & Missaglia, Marco, 2006. "Estimation of income elasticities and their use in a CGE model for Palestine," Conference papers 331552, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    5. 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.
    6. Jiangning Zhao & Bin Zhang, 2017. "Chintrepreneurship ¨C The China-way of Entrepreneurship Government Intervention, Seedling Approach ¨C A Network-based Model of Entrepreneurship," Management and Organizational Studies, Management and Organizational Studies, Sciedu Press, vol. 4(1), pages 30-66, January.
    7. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 569-600.
    8. Rachel Griffith & Gareth Macartney, 2014. "Employment Protection Legislation, Multinational Firms, and Innovation," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 135-150, March.
    9. 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.
    10. Amelia U. Santos-Paulino & Mariagrazia Squicciarini & Peilei Fan, 2008. "R&D (Re)location: A Bird's Eye (Re)view," WIDER Working Paper Series RP2008-100, World Institute for Development Economic Research (UNU-WIDER).
    11. Saliola, Federica & Zanfei, Antonello, 2009. "Multinational firms, global value chains and the organization of knowledge transfer," Research Policy, Elsevier, vol. 38(2), pages 369-381, March.
    12. Dobson, Wendy & Safarian, A.E., 2008. "The transition from imitation to innovation: An enquiry into China's evolving institutions and firm capabilities," Journal of Asian Economics, Elsevier, vol. 19(4), pages 301-311, August.

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    Keywords

    International trade; Low-wage country innovation;

    JEL classification:

    • F1 - International Economics - - Trade

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