We consider trade between a flexible wage America and a rigid real wage Europe. In a benchmark case, a move from autarky to free trade doubles the European unemployment rate, while it raises the American unskilled wage to the high European level. Entry of the unskilled South to world markets...

Does national market size matter for industrial structure? This has been suggested by theoretical work on quot;home marketquot;effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience transport costs only for the differentiated...