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Factor Price Equalization in the UK?Andrew B. BernardDartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) Stephen J. ReddingPrinceton University; London School of Economics (LSE); Centre for Economic Policy Research (CEPR) Peter K. SchottYale University - School of Management; National Bureau of Economic Research (NBER) Helen SimpsonCMPO; Institute for Fiscal Studies (IFS) June 2002 Tuck School of Business Working Paper No. 02-15; Yale SOM Working Paper No. ES-20 Abstract: This paper develops a general test of factor price equalization that is robust to unobserved regional productivity differences, unobserved region-industry factor quality differences and variation in production technology across industries. We test relative factor price equalization across regions of the UK. Although the UK is small and densely-populated, we find evidence of statistically significant and economically important departures from relative factor price equalization. Our estimates suggest three distinct relative factor price areas with a clear spatial structure. We explore explanations for these findings, including multiple cones of diversification, region-industry technology differences, agglomeration and increasing returns to scale.
Number of Pages in PDF File: 44 Keywords: Relative Factor Prices, Diversification Cones, Technology, Economic Geography JEL Classification: F11, F14, C14, J30 working papers seriesDate posted: June 21, 2002Suggested CitationContact Information
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