Technological change and factor mix over the product cycle: A model of dynamic comparative advantage

Abstract This paper presents a simple dynamic model of how, for a given set of factor prices, the optimizing mix of factor inputs changes over a product cycle, and of how (as a result) comparative advantage in international trade shifts. The model is designed to be consistent with, and to explain, the following stylized facts. When a new technology comes into being, follow-on improvements of the original basic design tend to occur at a rapid rate. Opportunities for improvement and the nonroutinized nature of the production process put a premium on flexibility and insight. As the technology settles down, the premium placed on problem solving ability declines, obsolescence of equipment occurs less rapidly, and unskilled workers and machinery are substituted for skilled workers.