ABSTRACT
In the last several years, the issue of globalization and its e ects on developing countries has become the focus of much research because of the growing concern about its impact on growth, income distribution and poverty. International trade theory suggests that increased openness to trade and foreign direct investment (FDI), through their e ect on economic growth, should make income distribution more equal and reduce poverty in developing countries. This is based on the Heckscher-Ohlin-Stolper-Samuelson model, which in its simplest form postulates that less developed countries will tend to export labour-intensive and/or low-skill intensive products and import skill-intensive products from developed countries. This means that trade will increase the real returns of the abundant low-skill labour factor and at the same time reduce the return to the relatively scarce highskill labour; thereby reducing income inequality in developing countries.
