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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 University of Toronto, Department of Economics in its series Working Papers with number tecipa-193.

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Length: 31 pages
Date of creation: 26 Oct 2005
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-193
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283

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  1. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
  2. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  3. 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.
  4. Dalia Marin & Thierry Verdier, 2003. "Globalization and the empowerment of talent," DELTA Working Papers 2003-32, DELTA (Ecole normale supérieure).
  5. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  6. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  7. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  8. Wilfred J. Ethier & James R. Markusen, 1991. "Multinational Firms, Technology Diffusion and Trade," NBER Working Papers 3825, National Bureau of Economic Research, Inc.
  9. Pol Antràs, 2003. "Incomplete Contracts and the Product Cycle," NBER Working Papers 9945, National Bureau of Economic Research, Inc.
  10. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
  11. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  12. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  13. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market: a General Equilibrium Approach," CEPR Discussion Papers 3526, C.E.P.R. Discussion Papers.
  14. repec:hrv:faseco:4784029 is not listed on IDEAS
  15. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders and Product Cycles," NBER Working Papers 3201, National Bureau of Economic Research, Inc.
  16. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing Versus FDI in Industry Equilibrium," CEPR Discussion Papers 3647, C.E.P.R. Discussion Papers.
  17. Diego Puga & Daniel Trefler, 2002. "Knowledge creation and control in organizations," Working Papers dpuga-02-01, University of Toronto, Department of Economics.
  18. Grossman, Gene M & Helpman, Elhanan, 1991. "Endogenous Product Cycles," Economic Journal, Royal Economic Society, vol. 101(408), pages 1214-29, September.
  19. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  20. repec:rus:hseeco:122439 is not listed on IDEAS
  21. 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 253-66, April.
  22. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
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