Globalization, in its multiple interpretations, is seen by many people as a great possibility of improving living standards in developing countries. Trade and financial integration can encourage competition, technology transfers and specialization according to comparative advantage principles....

International integration in capital markets raises the cost of capital in technology-backward countries, pushing them toward specialization in labor-intensive industries. To avoid specialization and to sustain production of capital-intensive industries, governments either impose tari.s or limit...

The one-to-one mapping between cross-country differences in capital returns and the size and direction of international capital flows after financial integration vanishes in a multi-sector world with a laborintensive non-tradable sector if financial liberalization generates significant swings in...