Question
Information: In a Heckscher-Ohlin model, two countries exist in the world: the US and Mexico. Suppose that there are two resources used for production: skilled
Information: In a Heckscher-Ohlin model, two countries exist in the world: the US and Mexico. Suppose that there are two resources used for production: skilled labour (S) and unskilled labour (U). Each country can produce the same two goods: computers and toys. Computers are a skill-intensive good, while toys are unskilled-intensive. Finally, we also know that the US is skilled labour abundant while Mexico is unskilled labour abundant.
Question: Suppose that, after opening up to trade with the US, wage inequality (the gap between wages for high wage earners and low wage earners) in Mexico increased. Explain if this is consistent with the HO model's predictions
Please provide a thorough explanation.
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