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Industrial heterogeneity and international product cycles

Yuxiang Zou () and Tai-Liang Chen ()
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Yuxiang Zou: Zhongnan University of Economics and Law
Tai-Liang Chen: Zhongnan University of Economics and Law

Journal of Economics, 2018, vol. 125, issue 1, 1-25

Abstract: Abstract This paper proposes a model of quality ladder in the context of North–South trade to examine the emergence of product cycles in industries of different research and development (R&D) intensity levels. To acquire the dominant advantage, firms as a whole can strategically undertake either quality upgrades through R&D or cost saving through the channels of market penetration—foreign direct investment (FDI) or offshoring. In an infinite-horizon game, the uses of mixing moving-up and moving-out strategies in high-tech and medium-tech industries generate product cycles. Furthermore, in low-tech industries, FDI is a strongly dominant strategy for the industry leaders and followers. Under certain conditions, firms leapfrog over each other and product cycles thus emerge.

Keywords: North–South trade; Industrial heterogeneity; Vertical innovation; Penetration channels; International product cycles (search for similar items in EconPapers)
JEL-codes: C72 D21 F12 F23 (search for similar items in EconPapers)
Date: 2018
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