Question

1.How can trade be based on technological gaps and product cycles? Your answer should include an explanation of each.

Answer 1

Technological gaps can be seen between developed and developing nations of the world. It is seen that developed nations of the world generally produce capital intensive products which require high investment in technological growth and research and development. On the other hand, the products products by developing nations are more labor intensive. This leads to trade pattern among these nations where developed nations produce and export capital intensive goods to developing nations and developing nations produce and export labor intensive goods to developed nations of the world. Thus, technological gaps between these nations led to this unique trade pattern.

Product cycles also determine trade patterns. This is because not all the finished goods are imported or exported. Some of the nations also export or import intermediate goods to produce the finished goods. Thus, product cycles where one nation specializes in the production of intermediate good also play an important role in determing the trade patterns among nations.