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

  • Puga, Diego
  • Trefler, Daniel

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5286.

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Date of creation: Oct 2005
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Handle: RePEc:cpr:ceprdp:5286
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  1. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market: a General Equilibrium Approach," CEPR Discussion Papers 3526, C.E.P.R. Discussion Papers.
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  14. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  15. Diego Puga & Daniel Trefler, 2002. "Knowledge Creation and Control in Organizations," NBER Working Papers 9121, National Bureau of Economic Research, Inc.
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  20. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078.
  21. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
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