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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

    ()

    (IMDEA Social Sciences, Universidad Carlos III de Madrid, and CEPR)

  • Daniel Trefler

    ()

    (Rotman School of Management and Department of Economics, University of Toronto)

Increasingly, a small number of low-wage countries such as China and India are involved in incremental innovation. That is, they are responsible for resolving production line bugs and suggesting product improvements. We provide evidence of this new phenomenon 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. The model explains why levels of involvement in incremental innovation vary across low-wage countries and across firms within each low-wage 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://repec.imdea.org/pdf/imdea-wp2009-01.pdf
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Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2009-01.

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Date of creation: 27 Jan 2009
Publication status: Published in Journal of Development Economics, 91(1), January 2010: 64-76
Handle: RePEc:imd:wpaper:wp2009-01
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  1. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," Econometric Society 2004 North American Summer Meetings 62, Econometric Society.
  2. Grossman, G.M. & Helpman, E., 1989. "Quality Ladders And Product Cycles," Papers 39-89, Tel Aviv.
  3. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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  5. 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.
  6. Diego Puga & Daniel Trefler, 2005. "Wake up and smell the ginseng: The rise of incremental innovation in low-wage countries," Working Papers tecipa-193, University of Toronto, Department of Economics.
  7. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA.
  9. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078.
  10. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  11. Puga, Diego & Trefler, Daniel, 2002. "Knowledge Creation and Control in Organizations," CEPR Discussion Papers 3516, C.E.P.R. Discussion Papers.
  12. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  14. Alessandra Casella & James E. Rauch, 1997. "Anonymous Market and Group Ties in International Trade," NBER Working Papers 6186, National Bureau of Economic Research, Inc.
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  22. repec:hrv:faseco:4784029 is not listed on IDEAS
  23. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
  24. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  25. 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.
  26. 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.
  27. 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.
  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.
  29. William R. Kerr, 2005. "Ethnic Scientific Communities and International Technology Diffusion," Harvard Business School Working Papers 06-022, Harvard Business School, revised Apr 2007.
  30. 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.
  31. 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.
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