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

45 Pages Posted: 29 Dec 2005

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: October 2005

Abstract

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

Keywords: International trade, low-wage country innovation

JEL Classification: F1

Suggested Citation

Puga, Diego and Trefler, Daniel, Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries (October 2005). CEPR Discussion Paper No. 5286, Available at SSRN: https://ssrn.com/abstract=872725

Diego Puga (Contact Author)

IMDEA Social Sciences ( email )

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Madrid, 28001
Spain

University of Toronto - Department of Economics ( email )

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HOME PAGE: http://dpuga.economics.utoronto.ca/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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