“Availability” and Other

Influences on the Commodity

Composition of Trade-1956
Irving B Kravis
• The purpose of his paper was to assess the relative importance of the various factors
that influence the commodity composition of the foreign trade of the US
• An important extension of international trade theory given by Heckscher and Ohlin is
the availability approach to international trade
• According to Kravis, it is the domestic availability or non-availability of goods that
governs the pattern of trade.
• Kravis, while attempting to test the generalisation of H-O theory that labour-abundant
countries export labour-intensive goods, found that the exporting-industries invariably
had been paying relatively high wage rates even in those countries.
• Kravis, therefore, asserted that the nations would export those products which were
readily available in the home country. They would tend to import, on the contrary, such
products the domestic supply of which had been short of their demand.
• According to him, the essential basis of international trade has been the ‘non-
availability of goods at home’. The non-availability of goods in the home country may
either be in the absolute or the relative sense.
• The absolute non-availability means certain goods may not be available at all in
the home country such as diamonds in the U.S. economy.
• The non-availability in the relative sense signifies that the domestic supply of
products is short of their demand and the additional output of those goods can
be possible in the home country at much higher costs. The principle of
comparative advantage in such a case comes into its own and countries prefer to
import such products from abroad rather than to produce them at home at the
prohibitive costs.
• Kravis maintains that the domestic availability or otherwise of certain specified
products in a particular country is governed by:
1. Natural Resources
2. Technical Progress
3. Product Differentiation
4. Govt Policy
1. Natural Resources
• The pattern of trade of a given country is influenced by the relative abundance or
scarcity of natural resources.
2. Technical Progress
• The technical progress can have a significant impact upon factor utilisation, factor
costs, expansion in the scale of production and improvement in the quality of product
• In general, technical progress can increase considerably the domestic availability of
certain categories of products, the surplus quantities of which can be exported abroad.
3. Product Differentiation
• The producers in different countries are inclined to produce different varieties of
products. The production of such goods confers temporary monopoly to a specific
innovating country and it disposes of its special product variety in the foreign markets.
4. Government Policy
• The tariff and non- tariff trade restrictions tend to restrict the international flows of
goods. The international cartels like OPEC too follow restrictive policy measures and
the availability of a large range of products gets affected on the international plane.
• While natural resources, technical progress and product differentiation together lead
probably to expansion in the volume of international trade, the trade restrictions imposed
by the countries tend to have a limiting impact upon trade
• Kravis theory can be explained with the help of an example
• Four countries (A,B,C & D) with two products (Wheat and Steel)
• Country A Agricultural Land + …………..
• Country B Agricultural Land + Iron ore
• Country C Agricultural Land + Iron ore
• Country D ………………………… + Iron ore
• The production of both the commodities requires labour and capital.
• In addition, the production of wheat requires fertile agricultural land whereas the
production of steel requires iron ore
• Given these factor endowments, country A can produce only wheat and country D can
produce only steel
• Country A will export wheat to country D and country D will export steel to country A
• Since B and C are capable of producing both the commodities, the trade between them will
be governed by their respective comparative cost advantages
• Suppose the domestic exchange ratio between wheat and steel in country B is 6 units of
wheat = 1 unit of steel. It is 3 units of wheat = 1 unit of steel in country C. If the
international exchange ratio is settled at 4 units of wheat = 1 unit of steel, country B will
export wheat to country C and latter will export steel to country B
The availability approach has been discussed by R.
Findlay in relation to the factor proportions approach.
It is supposed that two countries A and B can produce
two commodities, wheat and steel. They have equal
endowments of labour, capital and iron ore. However,
country B has more agricultural land than the country
A.

AA1 is the production possibility curve of country A

and A1B is the production possibility curve of country
B. P0P0 and P1P1 are the terms of trade lines which
have the same slope

The line OR starting from origin indicates the demand

proportions of two commodities in these countries.

The excess availability of steel in country A will be

exported to country B and the excess availability of
wheat in country B will be exported to country A