Due to the nation having such extremely low wage production costs, it is actually cheaper for China to produce old goods with older and possibly more outdated technologies because they have a greater labor source at much less expensive costs than workers in more developed nations. What the country is lacking, however, is free capital from investors to structure strategies for producing future innovation. Investing in innovation creates the need to pay more skilled workers and tie up capital in projects that will not produce immediate results. This currently goes against China's basic export model, which is to produce cheap goods in massive quantities in order to flood the market as soon as possible. Thus, "China can produce old goods, but cannot as easily innovate and produce new goods" (Bloom, 2012). China itself benefits more from relying on older technologies to produce well in a cheaper fashion; however, this hinders its ability to spend time, effort, and funding in structures for future innovation.
Yet, this is not entirely a bad situation for China. As it continues to produce more and more foreign goods, it itself absorbs some of the older technological changes that work generated in foreign countries. As technologies evolve and then start to become more standard, they are introduced into China thus allowing for some level of technological change. This change is not based on internal innovation and discovery, but rather the assimilation of foreign tested production practices being adopted within the Chinese production force. Still, Coe (2007) also reminds of the situation that "OCED countries are also important since countries with flexible labor and product markets, with good educational institutions and training systems, and with effective employment and innovation policies will more easily and rapidly adapt to the challenges and opportunities from increased trade and off shoring." From this perspective, even nations which are using their low cost production to stay competitive can themselves also benefit from investing in innovation. When investments are made in increasing innovation, this only strengthens their competitive position within the international marketplace. As such, nations like China and India have recognized a need to reinvest into innovation policies and practices for future evolutions that will allow them to continuously stay on top of the market. Essentially, "there are different channels through which skilled biased innovation spillover from foreign to local firms" (Lee & Vivarelli, 2006).
Additionally, Gorodnicheno and Svejnar (2010) conducted another similar study in which the relationship between competition over trade and technological...
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