This theory maintains that there is a continuous weakening of technological superiority of one country over another in the production of existing products, while the former country keeps acquiring technological superiority in new products.
Consequently, the technologically superior economy enjoys a cost advantage over its competitor in each product for a limited period during which it exports that commodity.
Later on, the technologically inferior country acquires cost advantage through transfer of technological knowledge and lower wage rates.
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During this period, the advanced country starts importing the same commodity which it was exporting in the initial stage.
To add to this reasoning, we should note that a technologically inferior economy cannot adopt the superior technology as soon as it emerges in an advanced country. This is because of several reasons.
Transfer of knowledge and technology is not “free”. It has its own economic cost, such as in the form of making existing productive capital and equipment etc., obsolete.
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An economically weaker country cannot afford to bear the cost of rapid obsolescence. Moreover, the advanced countries prevent a free transfer of technology through various measures like patent protection, intellectual property rights, and so on.
The product life cycle approach has given rise to several so-called North- South Models. Here, the terms North and South respectively denotes technologically advanced and poorer countries.
Product cycle models assume that new products are invented in the North. Over time, however, there are further modifications in them.
Also, the producers in the South succeed in imitating those products and are able to produce them at a lower cost.
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As a result, either these goods go out of the market, or their production shifts to the South. In other words, before imitation, all products are exported by the North, while after imitation they are imported.
It is noteworthy that these models contain an element of truth, but they are not able to fully explain the basis of trade.
For that, we should bring in additional influencing factors like foreign direct investment (FDI), the means by which technology is transferred from one country to the other; the means by which technology spreads within the South, the newly developing practices of “outsourcing” (that is, the practice of parent companies procuring spare parts, components, and processing services from the South), joint ventures, and so on.