Technology gap

The technology gap theory a model by Posner 1961, describes an advantage enjoyed by the country that introduces new goods in a market.[1] As a consequence of research activity and entrepreneurship, new goods are produced and the innovating country enjoys a monopoly until the other countries learn to produce these goods: in the meantime they have to import them.[1] It is based on two forms of lags, that is, demand lag and imitation lag. Demand lag refers to the time it takes from creating a new product, up to when it is accepted locally, at this point, exports are equal to zero and there is test marketing as well as product activation. This lag also reaches up to a point when the importing countries slowly accept the newly developed product due to lack of awareness. Imitation lag refers to the time when the product is now fully accepted by the importing country and there will be a rise in exports, hence producers in the importing country will start imitating the new product. This process' length depends on the innovativeness and the amount of R&D the importing country spends on developing the product. Thus, international trade is created for the time necessary to imitate the new goods (imitation lag).[1]

This lag has several components, that Posner (1961) classifies (from the point of view of the importing country) in the following categories:[1]

  1. foreign reaction lag. This is the time between the successful utilization of the innovation by entrepreneurs in the innovating country and the new goods becoming regarded, by some firms in the importing country, as a likely competitor for their products.
  2. domestic reaction lag, which is the time required for all firms in the importing country to become aware of the competition from the new good.
  3. learning period, which is the time required for the importing country's firms to learn to produce the new good, and actually produce and begin selling it on the domestic market.

According to Posner, to get the total net lag, one should subtract from the imitation lag a demand lag, that is, the time elapsing between the introduction of the new good in the innovating country and the appearance of a demand for it in other countries (some time elapses before the other countries' consumers come to know of the new good and acquire a taste for it).[1] Imports of the new good will therefore take place only in the period of time resulting from the difference between the imitation lag and the demand lag.[1]

See also

References

  1. 1 2 3 4 5 6 Gandolfo, Giancarlo (1998). International Trade Theory and Policy: With 12 Tables. Springer. p. 234. ISBN 3-540-64316-8.
This article is issued from Wikipedia - version of the 10/20/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.