The Product Life Cycle Theory: Empirical Evidence
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* This paper presents 3 empirical tests of the product life cycle theory, which states that developed countries are internationallycompetitive in growth products and less developed countries (LDCs)are competitive in mature products. The tests are based on world production data series that are relatively new and yet long enough to classify products as being in the growth or mature stage. The tests are also among the most comprehensive reported in the literature so far, in terms of numberof products and industries included. This paper first presents an overview of the literature on the product life cycle, followed by an account of the tests performedby Hirsch [1967];final sections present 3 empirical tests and the summary and conclusions.
INTRODUCTION
Dissatisfaction with the restrictive assumptions of classical international trade THEPRODUCT theory and with its inadequacy to deal with development problems resulted in at- LIFECYCLE tempts to explain trade patterns by means of a theory that emphasized previously THEORY neglected elements.1 Balogh [1950], Kravis[1956],and MacDougall [1957] stressed that the competitive power of industrial countries is enhanced when they create new products or productionprocesses. Hoffmayer[1958]explained the dollar shortage of the 1950s in terms of the comparative advantage that the U.S. had in the production of new and research-intensive goods. (Theapparent contradiction between the results of his research and those of Lary[1963] may perhaps be explained in terms of the product classification used.) Vernon [1963, 1966] emphasized the role of "innovation,scale, ignorance, and uncertainty" and discarded the classical assumption that knowledge is a free good. He claimed that industrialized countries spend more on product development (often misleadingly labeled "research") than LDCs and tend to develop highincome or labor-saving products. Initially,the manufacture of a new product tends to be located in the country that developed it. When a product becomes mature, its degree of standardization and consequently of price elasticity of demand increases; cost considerations become more important and production will often be moved to "middle countries," that is, countries that export products in growth
Alicia Mullor-Sebastianis an economist with the InternationalMonetary Fund and has published in the fields of trade and development. This paper was presented at the Ninety-FourthAnnual Meeting of the American Economic Association, 28 December 1981, Washington DC. The author is indebted to Professor R. Guillespie of the Universityof Illinoisfor assistance at the early stages of this paper, and to V. Galbis of the IMFfor his comments on later versions. The opinions expressed here do not necessarily represent those of the IMF.
Journal of International Business Studies, Winter 1983 95
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stages to countries less developed than themselves, a
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