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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. Helpman, Elhanan, 2006. "Trade, FDI and the Organization of Firms," CEPR Discussion Papers 5589, C.E.P.R. Discussion Papers.
  2. Diego Puga & Daniel Trefler, 2002. "Knowledge Creation and Control in Organizations," NBER Working Papers 9121, National Bureau of Economic Research, Inc.
  3. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  4. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," Working Papers 148, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  5. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
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  8. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
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  10. 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.
  11. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  12. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," Econometric Society 2004 North American Summer Meetings 62, Econometric Society.
  13. 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.
  14. Grossman, Gene M. & Helpman, Elhanan, 2005. "Outsourcing in a Global Economy," Scholarly Articles 25586654, Harvard University Department of Economics.
  15. 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.
  16. Grossman, G.M. & Helpman, E., 1989. "Endogemour Product Cycles," Papers 10-89, Tel Aviv.
  17. 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 253-266, April.
  18. repec:hrv:faseco:4784029 is not listed on IDEAS
  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.
  20. 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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  22. 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.
  23. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  24. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  25. William R. Kerr, 2008. "Ethnic Scientific Communities and International Technology Diffusion," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 518-537, August.
  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. Alessandra Casella & James E. Rauch, 1997. "Anonymous Market and Group Ties in International Trade," NBER Working Papers 6186, National Bureau of Economic Research, Inc.
  28. John Sutton, 2001. "Rich Trades, Scarce Capabilities: Industrial Development Revisited," STICERD - Economics of Industry Papers 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  29. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  30. John Sutton, 2001. "Rich trades, scarce capabilities : industrial development revisited," LSE Research Online Documents on Economics 2037, London School of Economics and Political Science, LSE Library.
  31. 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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