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...

Helpman, Melitz, and Rubinstein (2008)HMRpresent a rich theoretical model to study the determinants of bilateral trade flows across countries. The model is then empirically implemented through a two-stage estimation procedure. This note seeks to clarify some econometric aspects of the estimation...