International Trade Development

International trade is a highly complex phenomenon. The complexities have increased with global expansion and dynamism of foreign trade of the countries world over. A single simple theory thus cannot explain it.

In recent years several new ideas have been presented by the economists in explaining the phenomenon of international trade. Most of them are based on empirical findings. Below a synoptic view of select studies is presented.

Availability doctrine

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 and Y are 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 knowhow 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 X and Y.

In this example, the exports of countries B and C can be explained by the relative commodity price difference as visualized in Ohlin’s model or even in terms of the comparative costs difference. 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 Y to D and imports X from the latter is suitably explained by the availability theory.

Sometimes, specific consumer preference for a particular country’s good available with it favour 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.

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