Wake Up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low-Wage Countries
Centro Studi Luca d'Aglaino Development Studies Working Paper No. 222
28 Pages Posted: 20 Feb 2007 Last revised: 22 Feb 2015
Date Written: January 2007
Abstract
Increasingly, a small number of low-wage countries such as China, India and Mexico 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.
Keywords: International trade, Low-wage country innovation
JEL Classification: F1
Suggested Citation: Suggested Citation
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