Wage inequality between skilled and unskilled labor in the US and its trading partners, Mexico and Chile, has increased since 1980, while Taiwan's wage inequality has decreased since the mid-1980s. The authors provide a new explanation for the latter, involving a rise in capital flows from Taiwan to less-developed countries (LDCs) in the form of vertical multinationals (MNEs), and a corresponding rise in intermediate-good exports from the MNEs to subsidiaries in LDCs. Moreover, national income in both countries definitely improves.