This paper looks at the effects of trade liberalization in Latin America in the late eighties and early nineties and concludes that the increase in wage inequality was due to: (1) relative factor endowments (2) an increase in demand for skilled workers due to an acceleration of skill-biased technology change (3) initial conditions and (4) the impact trade reform has on imperfectly functioning labour markets. The paper concludes that in order to decrease the impact of trade on poverty and inequality, trade-related policies are of outmost importance, as these policies can increase skills and other productive assets for the poor