Abstract

Although over 100 recent papers analyze the relationship between globalization and wage inequality, the theoretical and empirical link between them remains contested. Starting with the Stolper -Samuelson theorem, a standard result in trade theory that links changes in goods prices and changes in relative factor prices, this paper considers two issues that arise in the trade and wages debate. The first issue is whether changes in relative prices can explain changes in relative wages and whether changes in tariffs and trade policy explain movements in relative prices. The second is when changes in relative prices affect relative wages. To examine these two questions, this paper examines Mexico's trade liberalization. Revisiting the Mexican case is important for two reasons. Studying the Mexican case may 0022-1996/$ -see front matter D