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

  • Diego Puga
  • Daniel Trefler

Increasingly, a small number of low-wage countries such as China and India are involved in innovation -- not `big ideas' innovation, but the constant incremental innovations needed to stay ahead in business. We provide some 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. We explain why levels of involvement in innovation vary across low-wage countries and even across firms within each low-wage country. We then draw out implications for the location of production, trade, capital flows, earnings and living standards.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11571.

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Date of creation: Aug 2005
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Publication status: published as Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.
Handle: RePEc:nbr:nberwo:11571
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