This paper examines the increase in relative wages of skilled workers in Mexico during the 1980s, attributing it to rising capital inflows from abroad, particularly from U.S. multinationals. The authors argue that these capital inflows, or outsourcing, have shifted production in Mexico towards skill-intensive goods, increasing the relative demand for skilled labor. Using state-level data from the Mexico Industrial Census (1975-1988), they find a positive correlation between FDI growth and the relative demand for skilled labor. In regions with high FDI concentration, FDI accounted for over 50% of the increase in the skilled labor share of total wages during the late 1980s. The paper develops a model showing that capital flows from North to South increase the relative wage of skilled labor in both regions. In Mexico, FDI led to a significant increase in the relative demand for skilled labor, particularly in the border region. The authors also find that FDI has a positive effect on relative wages and employment of skilled labor, consistent with the hypothesis that outsourcing by multinationals has been a significant factor in the increase in the relative demand for skilled labor in Mexico. Empirical results from OLS and IV estimations support the hypothesis that FDI is associated with an increase in the relative demand for skilled labor. The results show that FDI can account for a large portion of the increase in the skilled labor share of total wages in Mexico. The findings suggest that the increase in the skilled labor share of total wages in Mexico has been almost entirely the result of within-industry changes in wage shares, rather than between-industry shifts in employment. The paper concludes that foreign direct investment has important consequences for the relative wages and employment of skilled and unskilled workers in Mexico.This paper examines the increase in relative wages of skilled workers in Mexico during the 1980s, attributing it to rising capital inflows from abroad, particularly from U.S. multinationals. The authors argue that these capital inflows, or outsourcing, have shifted production in Mexico towards skill-intensive goods, increasing the relative demand for skilled labor. Using state-level data from the Mexico Industrial Census (1975-1988), they find a positive correlation between FDI growth and the relative demand for skilled labor. In regions with high FDI concentration, FDI accounted for over 50% of the increase in the skilled labor share of total wages during the late 1980s. The paper develops a model showing that capital flows from North to South increase the relative wage of skilled labor in both regions. In Mexico, FDI led to a significant increase in the relative demand for skilled labor, particularly in the border region. The authors also find that FDI has a positive effect on relative wages and employment of skilled labor, consistent with the hypothesis that outsourcing by multinationals has been a significant factor in the increase in the relative demand for skilled labor in Mexico. Empirical results from OLS and IV estimations support the hypothesis that FDI is associated with an increase in the relative demand for skilled labor. The results show that FDI can account for a large portion of the increase in the skilled labor share of total wages in Mexico. The findings suggest that the increase in the skilled labor share of total wages in Mexico has been almost entirely the result of within-industry changes in wage shares, rather than between-industry shifts in employment. The paper concludes that foreign direct investment has important consequences for the relative wages and employment of skilled and unskilled workers in Mexico.