Question

How is the imitation gap hypothesis and the product life cycle hypothesis applicable to the cost of a coronavirus vaccine?

Word count 1000-1500

Use relevant diagrams

Answer 1

Imitation gap hypothesis is a model developed by M.V. Posner in 1961, which describes an advantage enjoyed by the country that introduces new goods in a market. The country will enjoy a comparative advantage as well as a temporary state of monopoly until other countries have achieved the ability to imitate the new good. Unlike the past theories which assume the market to be fixed and given, such as the Heckscher-Ohlin theory, the technology gap model addresses the technological changes. It suggests a state of economy influenced by science, politics, markets, culture and most importantly, uncertainty, which threatens the mainstream neoclassical economists as they explain economic outcomes mainly based on the natural endowment scarcity. The theory is backed up by the ideas of Joseph Schumpeter. As a result, the technology gap theory is often rejected by neoclassical economists.

Technological changes is cumulative, path-dependent, and non-specific for each country. Thus, it is hardly sharable between nations. Nowadays, it can determine the competence of a nation to a great extent, and influence demand conditions and technological policies. As a result, the technology gap theory strongly emphasizes on the role of government in prompting innovations.

The Product Life Cycle Theory is an economic theory that was developed by Raymond Vernon in response to the failure of the Heckscher-Ohlin model to explain the observed pattern of international trade. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area where it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.

The model applies to labor-saving and capital-using products that (at least at first) cater to high-income groups.

In the new product stage, the product is produced and consumed in the US; no export trade occurs. In the maturing product stage, mass-production techniques are developed and foreign demand (in developed countries) expands; the US now exports the product to other developed countries. In the standardized product stage, production moves to developing countries, which then export the product to developed countries.

The model demonstrates dynamic comparative advantage. The country that has the comparative advantage in the production of the product changes from the innovating (developed) country to the developing countries.

So by the introduction of corona vaccine there will be a great deal of advantages for the introduced country until all other countries acheives it.After the corona vaccine  becomes adopted and used in the world markets, production gradually moves away from the point of origin.