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Wake up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low-Wage Countries

Listed author(s):
  • Diego Puga

    (Universitat Pompeu Fabra)

  • Daniel Trefler

    (University of Toronto)

Increasingly, a small number of lowwage countries such as China, India and Mexico are involved in incremental innovation. That is, they are responsible for resolving productionline bugs and suggesting product improvements. We provide evidence of this new phenomenon and develop a model in which there is a transition from oldstyle productcycle trade to trade involving incremental innovation in lowwage countries. The model explains why levels of involvement in incremental innovation vary across lowwage countries and across firms within each lowwage country. We draw out implications for sectoral earnings, living standards, the capital account and, foremost, international trade in goods.

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File URL: http://www.dagliano.unimi.it/media/WP2007_222.pdf
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Paper provided by Centro Studi Luca d'Agliano, University of Milano in its series Development Working Papers with number 222.

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Length: 28
Date of creation: 02 Jan 2007
Handle: RePEc:csl:devewp:222
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  1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  2. 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.
  3. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 557-586.
  4. Grossman, Gene M & Helpman, Elhanan, 1991. "Endogenous Product Cycles," Economic Journal, Royal Economic Society, vol. 101(408), pages 1214-1229, September.
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  9. 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.
  10. 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.
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  12. 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.
  13. Diego Puga & Daniel Trefler, 2002. "Knowledge creation and control in organizations," Working Papers dpuga-02-01, University of Toronto, Department of Economics.
  14. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, January.
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  19. Diego Puga & Daniel Trefler, 2005. "Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries," NBER Working Papers 11571, National Bureau of Economic Research, Inc.
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  23. repec:hrv:faseco:4784029 is not listed on IDEAS
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  25. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  26. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, Oxford University Press, vol. 80(2), pages 190-207.
  27. Robert C. Feenstra & Andrew K. Rose, "undated". "Putting Things In Order: Patterns Of Trade Dynamics And Growth," Department of Economics 97-14, California Davis - Department of Economics.
  28. Alla Lileeva & Daniel Trefler, 2007. "Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants," NBER Working Papers 13297, National Bureau of Economic Research, Inc.
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  31. Sutton, John, 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.
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