Industrial heterogeneity and international product cycles

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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 

JEL Classification

C72 D21 F12 F23 

Notes

Acknowledgements

We are indebted to the editor-in-chief, two referees, Haitao Mao, Wenshou Yan, Xiaopeng Yin and Qi Zhang for constructive comments and helpful suggestions. Also, we are grateful for many useful comments and discussions by conference participants at 2016 Asia Meeting of Econometric Society in Japan and 2017 Annual Meeting of Chinese Society of International Trade.

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2017

Authors and Affiliations

  1. 1.School of EconomicsZhongnan University of Economics and LawWuhanChina
  2. 2.Wenlan School of BusinessZhongnan University of Economics and LawWuhanChina

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