In the early 1900s an international trade theory known as The Proportions Theory was outlined by Swedish economists, Eli Hecksher and Bertil Ohlin. Later termed the Hecksher-Ohlin Theory, it was based on the premise that countries focus exportation on products with abundant, and locally available, resources. In addition, importing should be focused only on goods that required resources which were in short supply. A study in published in 1953 by Wassily Leontief, showed that capital was more abundant in the U.S., compared to other countries, and therefore, capital-intensive goods would be exported by the U.S., leaving labor intensive goods for importation.
In regards to technology, the Heckscher-Ohlin analysis assumes that the same technology is available everywhere. Michael V. Posner, however introduced a new theory, based on the premise that the same technology is not available everywhere, thus creating a delay in technological diffusion between countries. One country may have a new product based on successful research and development; however there could be a lag in time before the second country acquires the technology and understanding in order to produce the same product. Thus, this theory was named the Imitation Lag hypothesis. In addition to the Imitation lag, a second lag would follow, known as the demand lag. Consumers in country II would have to buy in to the fact that the product would actually be better than what they currently use.
In 1966, Raymond Vernon expanded on the Imitation Lag hypothesis, creating the Product Cycle Theory (PCT). This theory concerns the life cycle of a typical new product and its effect on international trade. PCT divides a product into three different life cycles; the new product stage when it is produced only in one country; the maturing product state, when characteristics become identified, and production techniques are developed; and finally the standardized product stage. At this point, the...