Working Paper: NBER ID: w11571
Authors: Diego Puga; Daniel Trefler
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.
Keywords: No keywords provided
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local agent involvement (L85) | production cost reduction (D24) |
| local agent involvement (L85) | innovation efficiency (O35) |
| local agent involvement (L85) | higher innovation effort (O36) |
| local agent involvement (L85) | better innovation outcomes (O36) |
| local agent involvement (L85) | fresh ideas (O36) |
| US firm involvement with local agents (L85) | improved product quality (L15) |