The Dynamics of the "Mature" Product Cycle and Market Reycling, Flying-Geese Style: An Empirical Examination and Policy Implications

By Cutler, Harvey; Ozawa, Terutomo | Contemporary Economic Policy, January 2007 | Go to article overview

The Dynamics of the "Mature" Product Cycle and Market Reycling, Flying-Geese Style: An Empirical Examination and Policy Implications


Cutler, Harvey, Ozawa, Terutomo, Contemporary Economic Policy


I. INTRODUCTION

In recent years an extensive theoretical literature has been offered examining the implications of the product cycle (PC) model of trade (Hirsch 1967; Vernon 1966). (1) Emphasizing knowledge transfers, Krugman (1979) constructed a general equilibrium model consisting of an innovating North country and an imitating South country. (2) A key implication of the PC is that the North must continually innovate in the face of the South's ability to eventually imitate each new product. The flying-geese (FG) theory (inter alia, Akamatsu, 1935; Kojima, 2000, 2003; Ozawa, 1993, 2001, 2005) elaborates on the mature stage of the PC by examining conditions under which an initially imitating South country itself looses the comparative advantage in producing the mature product due to rising labor costs. The loss in comparative advantage results in the further and sequential transfer of production to less developed other South countries and the accompanying recycling of the North's import market among themselves, a phenomenon that can be called "market or comparative advantage recycling" (Ozawa, 1993; United Nations Conference on Trade and Development, 1995).

This article specifically examines one particular mature PC import, TV sets, in the U.S. market and its changing pattern of exporting economies from East Asia--first, from Japan and then from the Newly Industrializing Economies (NIEs) (Hong Kong, Singapore, Taiwan, and South Korea), from the Association of Southeast Asian Nations-4 (ASEAN-4) (Thailand, Malaysia, Indonesia, and the Philippines), and more recently, from China.

True, technological progress continues in the TV set industry (e.g., digitalization, flat-panel sets, and high definition TV [HDTV]), but set manufacturing has practically disappeared in the United States (Chandler, 2001). Incremental innovations are now being introduced mostly in the South/follower countries themselves, especially in Japan and South Korea. East Asia has emerged as the world's largest concentration of consumer electronics production. (3) In this sense, TV sets are certainly a "mature" product for the United States (too mature to be retained). In short, our study examines the phenomenon of PC-based imports and market recycling as witnessed in the United States and explores policy implications for both North and South countries in the age of globalization.

There have been several tests for the existence of the PC. Tsurumi and Tsurumi (1980) found support for the PC by determining that the U.S. price elasticity of demand for color TV sets increased over time as U.S. consumers chose between domestic- and Japanese-produced color TV sets. Audretsch (1987) also found support by determining that growth industries tend to be more R & D oriented while mature industries allocate fewer resources to this activity. Cantwell (1995) concluded that over time the share of patents of multinational corporations located abroad increased for most countries from 1920 to 1990, which supported the internationalization of investment by technological leaders. Gagnon and Rose (1995) found that a trade surplus (deficit) of a commodity is likely to persist over a long period of time, a trend that is counter to the PC and more consistent with factor proportions theory (which closely parallels the FG theory).

Econometric tests for the FG theory have been limited. Dowling and Cheang (2000) found support for the FG theory by utilizing both Balassa's "revealed" comparative advantage index and foreign direct investment (FDI) ratios for East Asian countries. Using Spearman rank correlation coefficients and examining three periods (1970-95, 1970-85, and 1985-95), they found that economic development trickled down from Japan to the NIEs and then to ASEAN-4. Cutler et al. (2003) analyzed labor-intensive trade data from Japan, the NIEs, the ASEAN-4, and China to the United States and found support for the FG theory (market recycling). …

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