Product cycle theory:

The product life cycle theory of Posner (1961) and Vernon (1 966) reflects the importance  of  multiple factors of production  in  contrast to the traditional theories of trade, which speak about one or  two factor models.  In Posner's words, "Long-term  patterns of international trade are influenced by product innovation  and  subsequent  diffusion. A country that produces  technically superior  goods  will sell these first to  its domestic market, then  to  other technically advanced countries. In time, developing  countries will import and later manufacture these goods, by which stage  the original innovator will have produced new products."

More elaborately, new products developed through technological innovation are  introduced  first  in a home market, where both  a  large market and  the resources important at the initial stage are found. During the  second  stage,  the domestic  industry develops a capacity for export, again reflecting comparative advantage within  the context of a generalised factor endowment model.

During the third stage, foreign production begins, usually in other industrial countries  to which the home firms exported during  the second stage. A  fourth stage witnesses the loss of competitive advantage in the home market as the technological gap narrows, and during afinalfifth  stage  the product becomes standardised  and  is  imported into the original home market.  Developing countries often gain a production advantage at this point, again in a manner consistent with  the generalised factor endowment model since they have an abundance of the semi-skilled labour that becomes a more important input at this stage  in the product life cycle.

Similar  dimensions  are  captured in the technological gap theory as well. Technological  gap  theory proposes that changes in international trade are dictated  by the relative technological sophistication of countries.