Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries

Diego Puga and Daniel Trefler

No 2009-01, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: Increasingly, a small number of low-wage countries such as China and India 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 (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2009-01-27
New Economics Papers: this item is included in nep-cwa and nep-int
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Published in Journal of Development Economics, 91(1), January 2010: 64-76

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Related works:
Journal Article: Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries (2010)
Working Paper: Wake up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low-Wage Countries (2007)
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