Short Essay on the Availability Doctrine of

International Trade
Nirav S
I. B. Kravis has developed the availability theory against the comparative cost theory as a plausible
explanation of international trade in certain cases. His argument is that country exports certain scarce
resources in the world because these are available with it. For instance Gulf countries export oil,
because oil fields are deposited with them.
To explain the availability doctrine theoretically let us assume that there are four countries A, B, C
and D. Suppose two goods X and Fare to be produced. Labour and capital are needed for both these
goods. But, in the production function of X, greater use of land is necessary, while, for Y a high
order of technical know-how is required. Countries A, B and C possess this technical know-how.
Countries B, C and D have land. That means country A can produce only Y, while D can produce
only X. Whereas, countries B and C are in a position to produce both goods: Z and Y.
In this example, the exports of countries B and C can be explained by the relative commodity price
differences as visualised in Ohlin's model or even in terms of the comparative cost differences.
But, the exports of countries A and B will be governed by the availability doctrine. It is obvious that
A can produce only Y, so it becomes its export. Similarly, D's export will be X.
In short, A exports 7to D and imports A!"from the latter is suitably explained by the availability
theory.
Sometimes specific consumer preference for a particular country's good available with it favours that
country in fetching a better terms of trade than its potential rivals. For example, Swiss watches
against Japanese watches.
However, the availability doctrine does not offer a sufficient explanation for international trade. It is
not a very deep-seated doctrine. It is neither comprehensive nor highly illuminating. It only serves
some purpose in explaining the exports of certain commodities like oil, minerals, etc., by some
countries. But, a general pattern of world trade cannot be explained in terms of this theory.
Country Similarity Theory
C o u n t r y S i m i l a r i t y T h e o r y

Swedish economist Staffan Burenstam Linder proposed the Country Similarity Theory in 1961 to
describe a pattern of international trade. Also referred to as the Linder hypothesis, the theory
states that countries with similar per capita incomes are most likely to engage in trade with one
another. Linder also observed that countries with similar incomes are likely to share consumer
preferences. The theory has since been expanded to include other areas of similarity, such as
level of development, savings habits, degree of technology and industrialization, language, and
communication and transportation systems.
Linder presented his hypothesis in his PhD dissertation, An Essay on Trade and Transformation,
as a response to Leontiefs paradox. In 1951 while empirically testing the Hecksher-Ohlin
theorem, which states that a country will export products that use its abundant factor intensively
and import goods that use its scarce factor, Wassily Leontief reached the conclusion that the
United States exports labor-intensive goods and imports capital-intensive goods. This is
paradoxical to since the U.S. is the most capital-abundant country in the world. Leontief
suggested that the paradox was caused by the greater efficiency of U.S. workers, but this
explanation received little support among economists.
One of the chief assumptions of Linders hypothesis is that consumers living in similar countries
will have similar tastes and want to buy the same goods and services. Linder observed that
manufacturers producing goods for the domestic market seek out countries with similar
economies and preferences whey they decide to expand to the export market. This is especially
true among developed countries, where a new product or a variation on an existing product
introduced in one country is likely to be found useful and desirable in similar counties. As a
result, high-income countries trade variations of the same goods among themselves.
The exchange of similar but differentiated products belonging to the same industry is referred to
as intra-industry trade. An example is automobile trade between the U.S., Europe and Japan. The
Country Similarity Theory suggests that intra-industry trade occurs when similar countries
import and export each others goods. Intra-industry trade is also characterized by a country both
importing and exporting products from the same industry. Standard industrial classifications say
that intra-industry trade accounts for about 25% of world trade. For developed countries as a
group, intra-industry trade is over 60% of all trade. Some developed countries experience more
intra-industry trade than others, with as much as 77% of Frances trade falling into this category.
In the decades following the development of Linders hypothesis, empirical studies have been
conducted using pooled data from countries around the world. The results of these studies
support Country Similarity Theory. Since the 1990s, empirical data has strengthened the theorys
validity. This is most likely due to increased globalization.
Prior to the development of Country Similarity Theory and other intra-industry theories of
international trade, traditional theories such as Mercantilism pointed to differences in supply and
demand conditions as a predicator of trade between two countries. Mercantilism, which
dominated economic thinking between 1500 and 1800, is based on the belief that there is a finite
amount of wealth in the world and that when one country has more, other countries have less.
Mercantilists encourage exports over imports and use the size of a countrys trade balance to
judge the success of its trade efforts. During the period when mercantilism was popular, nations
frequently restricted imports in order to avoid a trade imbalance.
Instead of focusing upon the differences between trade partners, Linders intra-industry trade
theory emphasizes the similarities. His hypothesis is noteworthy and still attracts the interest of
economists because it was one of the first theories to suggest that additional factors besides
supply and demand can influence trade.