This paper examines the increase in relative wages of skilled workers in Mexico during the 1980s, attributing it to capital inflows from abroad, particularly from multinational corporations in the United States and other Northern countries. The authors argue that these capital inflows have shifted production in Mexico towards skill-intensive goods, increasing the relative demand for skilled labor. Using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988, they find a positive correlation between growth in foreign direct investment (FDI) and the relative demand for skilled labor. In regions with high concentrations of FDI, growth in FDI can account for over 50% of the increase in the skilled labor share of total wages during the late 1980s. The study suggests that the rise in wage inequality in Mexico is consistent with a third explanation: the global increase in the relative demand for skilled labor due to capital flows from North to South. The findings highlight the significant impact of FDI on labor markets in recipient countries and challenge the prevailing view that outsourcing accounts for a small share of U.S. materials purchases.This paper examines the increase in relative wages of skilled workers in Mexico during the 1980s, attributing it to capital inflows from abroad, particularly from multinational corporations in the United States and other Northern countries. The authors argue that these capital inflows have shifted production in Mexico towards skill-intensive goods, increasing the relative demand for skilled labor. Using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988, they find a positive correlation between growth in foreign direct investment (FDI) and the relative demand for skilled labor. In regions with high concentrations of FDI, growth in FDI can account for over 50% of the increase in the skilled labor share of total wages during the late 1980s. The study suggests that the rise in wage inequality in Mexico is consistent with a third explanation: the global increase in the relative demand for skilled labor due to capital flows from North to South. The findings highlight the significant impact of FDI on labor markets in recipient countries and challenge the prevailing view that outsourcing accounts for a small share of U.S. materials purchases.