depend on profit rate. No room for firms Standard Heckscher–Ohlin theory assumes the same production function for all countries. This implies that all firms are identical. The theoretical consequence is that there is no room for firms in the H–O model. By contrast, the New Trade Theory emphasizes that firms are heterogeneous. Political background From the middle of the 19th century to 1930s, giant flows of immigration took place from Europe to North America. It is estimated that more than 60 million people crossed the Atlantic Ocean. Some politicians worried about negative consequences of immigration, such as cultural conflicts. For those politicians, the Heckscher-Ohlin theory of Trade provided a good reason “in support of both restrictions on labor migration and free trade in goods”. Alternatives theories of trade New Trade Theory New Trade Theory analyses individual enterprises and plants in an international competitive situation. The classical trade theory—i.e., the Heckscher–Ohlin model—has no enterprises in mind. The new trade theory treats enterprises in an industry as identical entities. "New" New Trade Theory (NNTT) gives focus on the diversity of enterprises. It is a fact that some enterprises engage in export and some that do not. Some enterprises invest directly in the foreign country in order to produce and sell in that country. Some other enterprises engage only in export. Why does this kind of differences occur? New Trade Theory tries to find out the reasons of these well observed facts. New Trade theorists challenge the assumption of diminishing returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries would then allow those sectors to dominate the world market via a network effect. See also Intra-industry trade. Gravity model of trade The gravity model of international trade predicts bilateral trade flows based on the economic sizes of two nations, and the distance between them. Ricardo–Sraffa trade theory Ricardian theory is now extended in a general form to include not only labor, but also inputs of materials and intermediate goods. In this sense, it is much more general and plausible than the Heckscher–Ohlin model and escapes the logical problems such as capital as endowments, which is, in reality, produced goods. As the theory permits different production processes to coexist in an industry of a country, the Ricardo–Sraffa theory can give a theoretical bases for the New Trade Theory. See also A rising tide