Product Life-Cycle Theory

Discipline: Economics

Long-term patterns of international trade are influenced by product innovation and subsequent diffusion.

A country that produces technically superior goods will sell these first to its domestic market, then to other technically advanced countries. In time, developing countries will import and later manufacture these goods, by which stage the original innovator will have produced new products.

On a smaller scale, individual products pass through distinct phases: after a period of research and development, and trial manufacture, there is a period of introduction characterized by slow growth and high development costs. This is followed by a period of growth as sales and profits rise. A phase of maturity and saturation is then experienced as sales level off and the first signs of decline occur. The final phase is decline, characterized by lower sales and reduced profits, and perhaps final disappearance from the market.

The duration of each stage of the cycle varies with the product and the type of management supporting it.

Also see: technological gap theory

Source:
M V Posner, 'International Trade and Technical Change', Oxford Economic Papers, vol XIII (October, 1961), 323

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