The technology gap theory describes an advantage enjoyed by the country that introduces new goods in a market. As a consequence of research activity and entrepreneurship, new goods are produced and the innovating country enjoys a monopoly until the other countries learn to produce these goods: in the meantime they have to import them. Thus, international trade is created for the time necessary to imitate the new goods (imitation lag).
This lag has several components, that Posner (1961) classifies (from the point of view of the importing country) in the following categories:
- foreign reaction lag. This is the time between the successful utilization of the innovation by entrepreneurs in the innovating country and the new goods becoming regarded, by some firms in the importing country, as a likely competitor for their products.
- domestic reaction lag, which is the time required for all firms in the importing country to become aware of the competition from the new good.
- learning period, which is the time required for the importing country's firms to learn to produce the new good, and actually produce and begin selling it on the domestic market.
According to Posner, to get the total net lag, one should subtract from the imitation lag a demand lag, that is, the time elapsing between the introduction of the new good in the innovating country and the appearance of a demand for it in other countries (some time elapses before the other countries' consumers come to know of the new good and acquire a taste for it). Imports of the new good will therefore take place only in the period of time resulting from the difference between the imitation lag and the demand lag.
- Gandolfo, Giancarlo (1998). International Trade Theory and Policy: With 12 Tables. Springer. p. 234. ISBN 3-540-64316-8.