The paper provides a general-equilibrium model where incomplete international financial markets lead to insufficient industrial specialization and low international trade. As international portfolio diversification is limited and productivity is uncertain, investors wish to maintain a...

In this paper we demonstrate that intra-industry trade (or FDI)between identical countries could produce theobserved deterioration in the relative wages of unskilled workers.This involves a model of North-Northintegration through either increased trade flows or increased MNE-based production....