The Product Life Cycle and New International Division of Labor

This paper develops a dynamic model of the product life cycle, which highlights the key factors of the ongoing 'new' international division of labor. The model depicts a world of three regions—the North, the Middle, and the South—in which the pattern of trade is continuously changing. New goods are continuously developed in the North, the developed countries of the OECD, while technology of producing some northern goods is being transferred to the Middle, the Newly Industrializing Countries (NICs). Production technology of some middle goods is also being diffused to the South, the Less Developed Countries (LDCs). This process of product cycle type technological changes affects not only the number of goods produced in and exported from each region, but also the relative commodity prices, factor prices, and capital movement in the world. This helps us understand why the NICs face with growing protectionism in developed country markets.