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

  • 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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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
Date of revision:
Handle: RePEc:csl:devewp:222
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  1. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  2. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing Versus FDI in Industry Equilibrium," CEPR Discussion Papers 3647, C.E.P.R. Discussion Papers.
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  8. Gene M. Grossman & Elhanan Helpman, 1989. "Endogenous Product Cycles," NBER Working Papers 2913, National Bureau of Economic Research, Inc.
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  14. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  15. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," Working Papers 149, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  16. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  17. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
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  21. 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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  30. 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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