With the possible exception of the east Asian countries, increased foreign trade and investment have increased wage inequality in almost all parts of the globe during the last two decades of the 20th century. Theoretically as well as empirically Heckscher-Ohlin-Samuelson model of trade, with the Stolper-Samuelson result at its core, fails to explain such widening of wage gap between skilled and unskilled labour particularly in the south. This paper discusses alternative variants of the specific factor model accounting for the diverse trade pattern, informal factor markets and existence of non-traded goods, that can help our understanding of the wage gap phenomenon.
