The Product Cycle Hypothesis and The Heckscher-Ohlin-Samuelson Theory of International Trade

The Product Cycle Hypothesis and The Heckscher-Ohlin-Samuelson Theory of International Trade

This paper builds up a neo-classical trade model to explain the ``product-cycle`` hypothesis originally proposed by Raymond Vernon. As the skill intensity of a product falls over time, the more capital-abundant North tends to export ``new`` goods and the less developed South exports ``old`` goods, The trade pattern remains invariant over time although the product mix changes as the ``new`` goods become old, and this exhibits the product-cycle type phenomenon. Thus, it is shown that. with reasonable assumpitons. the traditional factor-abundance model is sufficient to generate a product cycle type trade pattern.