It is hard to believe that factor-endowments theory could offer an adequate explanation of international trade patterns. While the theory adequately predicts Saudi Arabian oil exports, it hardly seems appropriate for explaining the revolutionary impact of new technologies on world trade. Yet to take this position is to misunderstand the thrust of recent empirical research in international trade, research that is giving shape to a new generation of Heckscher-Ohlin-Vanek (HOV) thinking. The core of this new thinking is a class of HOV predictions that allow for international differences in technology and choice of techniques. The literature is in the process of rapid evolution. As a result, the key questions tend to get lost. There have been three of them. First, what empirical regularities account for the poor performance of the HOV model? Second, are there alternative assumptions about technology that lead to better test results for the model? Both of these are interesting questions, but they hardly constitute an end point for understanding the impacts of international trade. As Edward E. Leamer (1993 p. 439) pointed out, [E]conomists ought to abandon the idea that models are either true or false in favor of the notion that models are sometimes useful and sometimes misleading. The third and most important question is whether the HOV model provides a useful framework for thinking about international technology differences. In spite of the defects of the model, the answer is a definite ''yes.9

This paper presents a monopolistic competition model of trade and multinational production that incorporates asymmetric trade barriers and international differences in production costs. The model predicts the functional form for the dependence of U.S. exports and multinational production on tariffs, distance, and production costs. To deal with simultaneity, we estimate the nonlinear equations of U.S. exports and multinational production simultaneously. In the estimation, we also include country fixed effects and allow for endogenous location choice by firms. The estimation yields reasonable estimates of the structural parameters, including the elasticity of substitution. Based on the estimates, we then simulate the effects of trade liberalization. We find that the elimination of tariffs worldwide would increase U.S. exports by 3.0% and U.S. multinational production by 21.7%. This large expansion of U.S. overseas production mainly results from an expected increase in the number of U.S. foreign affiliates in response to tariff reductions.

Recent theoretical analysis suggests that a reduction in the cost of exporting increases the degree of assortative matching between workers and firms in export-oriented industries. Changes that reduce the cost of imports have an ambiguous impact on matching. We combine detailed Swedish matched worker-firm data from 1995-2005 with tariff data to test these hypotheses. The data cover 94 sectors subject to international competition and include all firms with at least 20 employees. Our findings strongly support the theoretical predictions.

This paper studies the impact of financial structures and regulations on export dynamics using data from a large panel of countries over the 1997–2014 period. The results suggest that bank-oriented financial systems can boost the number of exporters more than market-oriented systems. However, especially in lower income countries with lax bank regulation, banks tend to reduce the dynamism of the export sector, slowing down exporters’ entry and exit. This reduced dynamism appears to reflect domestic banks’ protection of incumbent exporters more than banks’ screening of entrants or buffering of incumbents in difficult times. Foreign banks mitigate these effects, enhancing the dynamism of the export sector.