Can the HOSS framework help shed light on the simultaneous growth of inequality and informalization in developing countries?/ created by Arslan Razmi

Using simple, modified versions of the factor proportions framework, and focusing on structural features within developing economies, this paper attempts to reconcile puzzling developments observed in many post-reform, post-liberalization countries whereby increasing income inequality has emerged side-by-side with informalization of the economy. Measures undertaken to enhance public sector efficiency and attract investment in an import-intensive export sector may increase rental–wage and skilled–unskilled wage gaps, contra the predictions of the simple Heckscher–Ohlin–Stolper–Samuelson (HOSS) framework regarding skill- and capital-scarce countries. The common thread generating our interesting results is the presence of sectors that are even more labor-intensive than those producing traded goods.