ABSTRACT
The role played by industry-specific characteristics is quite different in the new theories of trade from their function in the factor abundance theory. In the H-O model, industries’ factor intensities provide a precise link between endowments and trade patterns. By contrast, the new theories do not build on an interaction between industry characteristics and country attributes to explain trade. Instead, the presence of some combination of industry characteristics is shown to be sufficient to establish two-way trade. Such an outcome is possible even in the case where the economic attributes of trading partners are not distinguishable in any significant way (Krugman, 1979a). More generally, the new theories assign a more important role to industry characteristics as determinants of trading patterns.
