Globalisation and Wage Inequalities: A Synthesis of Three Theories

Abstract

The theoretical insights of Heckscher and Ohlin, Feenstra and Hanson, and Tang and Wood between them provide a plausible explanation of the varied effects of globalisation on wage inequalities in developed and developing countries. In combination, these three theories can explain, among other things, why inequality has fallen in some developing countries but risen in others. Improved travel and communications facilities raise the relative wages of highly-skilled Northern workers, but in both the North and the South have mixed effects on wage gaps between medium-skilled and unskilled workers, sometimes reinforcing and sometimes offsetting the effects of falling barriers to trade.

Keywords: globalisation, wage inequalities, Heckscher and Ohlin

JEL Classification: F16