NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Diego Puga, Daniel Trefler

NBER Working Paper No. 11571
Issued in August 2005
NBER Program(s):International Trade and Investment, Productivity, Innovation, and Entrepreneurship

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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Document Object Identifier (DOI): 10.3386/w11571

Published: Puga, Diego & Trefler, Daniel, 2010. "Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries," Journal of Development Economics, Elsevier, vol. 91(1), pages 64-76, January.

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