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

44 Pages Posted: 10 Oct 2005 Last revised: 13 Feb 2022

See all articles by Diego Puga

Diego Puga

IMDEA Social Sciences; University of Toronto - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Daniel Trefler

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

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Date Written: August 2005

Abstract

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.

Suggested Citation

Puga, Diego and Trefler, Daniel, Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries (August 2005). NBER Working Paper No. w11571, Available at SSRN: https://ssrn.com/abstract=788436

Diego Puga (Contact Author)

IMDEA Social Sciences ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Daniel Trefler

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-4190 (Phone)
416-978-6713 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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