domestic financial market reform, capital account liberalization and tax reform. On the other hand, privatization contributed to narrowing wage differentials and trade openness had no effect. However, the paper also explores the effects of reforms on wage levels, and finds almost opposite results. Reforms had a positive effect on real average wages, but a negative effect on the wages of less-schooled workers.

While all these studies could be subject to methodological criticism, taken together they cast doubts on the empirical relevance of the international trade argument or, at least, of its simplest version. Several attempts have been made to reconcile the theory and the facts. One of them, by Wood (1997), points out that most of the evidence on increased wage inequality comes from Latin America and, to some extent, Latin America may be suffering the same impact as industrial countries. The most dramatic aspect of globalization in recent years has been the "China effect". Compared to Latin American countries, many developing countries in East Asia have large reserves of cheap unskilled labor. The mass arrival of "made in China" products might have swept away the demand for unskilled labor in most of the region.

Other studies question that the action was really driven by trade flows. The international trade argument relies on a reallocation of production across sectors. But studies focusing on sectors of activity, rather than on workers-with different, educational attainments, give little support to the reallocation hypothesis. **First,** it is not at all clear that trade barriers were really protecting activities that rely on skilled labor. For instance, Currie and Harrison (1997) found that protection in Morocco was significantly higher in sectors with a higher share of unskilled workers, such as textiles and clothing. And Hanson and Harrison (1999) showed that the reduction in tariff protection resulting from Mexico's sweeping 1985 trade reform disproportionately affected low-skill industries. Second, across a dozen "important" developing countries there is no clear trend in average wages across sectors, depending on whether they are export oriented or import competing (Ghose, 2000).

As in industrial countries, the focus has shifted to skill-biased technological change, rather than international trade. Berman and Machin (2000) used data from manufacturing activities in both industrial and developing countries. Instead of looking at the wages of export-oriented and import-substitution sectors, they considered the ratio of non-production to production wages. Non-production workers are probably more skilled than production workers. Therefore, this ratio can be interpreted as a skill premium. Over two decades, Berman and Machin found a slightly upward trend in the ratio for industrial countries and a dramatically declining trend for developing countries, and especially for middle-income countries. At a first glance, this result is consistent with the basic intemational trade model. However, they also find that most of the changes occur within sectors, rather than across sectors. Furthermore, the same sectors within manufacturing that substituted towards skilled labor in middle-income countries in the 1980s had been doing so in the United States since the 1960s. This pattern can be interpreted as evidence that skilled-biased technological change migrated from industrial to middle-income countries.

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