Liberalisation is often associated with increasing labour productivity in developing
countries. However, there is some evidence that increasing openness of an economy is
accompanied not only by increasing labour productivity but also by rising wage
inequality among skilled and unskilled workers in the organised manufacturing sector1
.
Several studies have documented rising wage inequality between skilled and unskilled
workers in developed countries, particularly the United States and United Kingdom, and
developing countries, particularly Latin American countries, since the 1980s2
. One of the
major explanations put forward for this rising wage inequality is the rise in the relative
demand for skilled labour due to the rise in foreign direct investment (FDI), higher
international trade and skill-biased technological change.