Factor Price Equality and the Economies of the United States

34 Pages Posted: 26 Dec 2000

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

Multiple version iconThere are 3 versions of this paper

Date Written: February 2005

Abstract

Do New York and Nashville face the same pressures from increased trade? This paper considers the role of international trade in shaping the product mix and relative wages for regions within the US. Using the predictions from a Heckscher-Ohlin trade model, we ask whether all the regions in the US face the same relative factor prices. Using the production side of the HO model, we derive a general test of relative factor price equality that is robust to unobserved regional productivity differences, unobserved regional factor quality differences, and variations in production technology across industries. Using data from 1972-1992, we reject the hypothesis that all regions face the same relative factor prices in favor of an alternative with at least three distinct factor price cones. Sort regions into cones with similar relative factor prices, we find that industry mix varies systematically across the groups. Regions that switch cones over time have more churning of industries.

Keywords: relative wages, Heckscher-Ohlin, cones, factor price equalization, labor market areas, CES production function

JEL Classification: F11, J31

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K., Factor Price Equality and the Economies of the United States (February 2005). Available at SSRN: https://ssrn.com/abstract=254279 or http://dx.doi.org/10.2139/ssrn.254279

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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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)

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Yale University - Cowles Foundation

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United States

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