Factor Price Equalization in the UK?

46 Pages Posted: 5 Oct 2002

See all articles by Andrew B. Bernard

Andrew B. Bernard

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stephen J. Redding

Princeton University

Peter K. Schott

Yale University - School of Management; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Helen Simpson

CMPO; Institute for Fiscal Studies (IFS)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2002

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.

Keywords: Relative factor prices, diversification cones, technology, economic geography

JEL Classification: C14, F11, F14

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K. and Simpson, Helen, Factor Price Equalization in the UK? (August 2002). Available at SSRN: https://ssrn.com/abstract=336600

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

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HOME PAGE: http://mba.tuck.dartmouth.edu/pages/faculty/Andrew.Bernard/

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR) ( email )

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Stephen J. Redding

Princeton University ( email )

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HOME PAGE: http://www.princeton.edu/~reddings/

Peter K. Schott

Yale University - School of Management ( email )

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203-436-6974 (Fax)

HOME PAGE: http://www.som.yale.edu/faculty/pks4

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

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New Haven, CT 06520-8281
United States

Helen Simpson

CMPO ( email )

University of Bristol
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Bristol, BS8 ITX
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom
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