unit, which may be the state or, in a large transnational enterprise, the mature business.


The Pacific Economic Community (PEC)1 (excluding Latin America and the People’s Republic of China) extends over one-fifth of the earth, embraces nearly one-sixth of its population, and is characterized by a wide diversity in population density; natural endowments; state of development; race, religion, language, script, and culture; and isolation from and proximity to world population centers. Although not a formally constituted community like the European Economic Community (EEC), the PEC is the world’s most rapidly growing trading area. It includes several states that developed unusually quickly, shifting from undeveloped to industrialized nations in a few decades. Although the region remains heterogeneous, internal bilateral and multilateral linkages are gradually developing. Also, surprisingly in a region with a predominantly Asian population, English is becoming its lingua franca, and so is providing an additional cultural link.

In this necessarily simplistic overview, the dynamics of economic development in this diverse group of countries can perhaps best be interpreted in terms of the technological complexity of goods and the product cycle, that is, the cycle of shifting comparative advantage (Vernon, 1966).

Goods and countries can then be classified as follows:



  • Raw materials—natural resource-intensive goods, very low technology content

  • Refined goods—labor-intensive technologies, low technology content

  • Manufactured goods—capital-intensive technologies, high technology content

Processed and capital goods—postindustrial high technologies and services, very high technology content


  • Undeveloped countries (UCs)

  • Developing countries (DCs)

  • Newly industrializing countries (NICs)

  • Industralized countries (ICs)

The Product Cycle

The product cycle begins in the industrialized, innovating country. The technology is diffused through exports, foreign investment, and licensing. This produces a cascading flow from highly developed to less developed countries, with progressive loss of comparative advantage to the low-labor-cost countries. The impact on the export-import balance between countries at different stages of development can be presented schematically as shown in Figure 1.2

Superimposed on the product cycle is obsolescence, the progressive decay of products. With increased volume and ease of production, this decay leads

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