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

See all articles by Diego Puga

Diego Puga

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI)

Daniel Trefler

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

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

Puga, Diego and Trefler, Daniel, Wake Up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low-Wage Countries (January 2007). Centro Studi Luca d'Aglaino Development Studies Working Paper No. 222 , Available at SSRN: https://ssrn.com/abstract=964158 or http://dx.doi.org/10.2139/ssrn.964158

Diego Puga (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

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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