Explaining the Wage Gap: Intra-Industry Trade, Services Linkages and Falling Transportation Costs

In the debate on globalisation and wage inequality within countries, Heckscher–Ohlin theory has featured prominently, yet fails to take into account that globalisation comprises much more than increased trade between advanced and less-advanced countries. This paper develops a framework that takes better heed of the many aspects of globalisation and thereby addresses a new channel through which globalisation might influence wage inequality. Our results indicate that to understand the impact of globalisation on wage inequality, one needs insight in the nature and stage of globalisation and the relative size of a country.