Factor Price Equalization? The Cointegration Approach Revisited

17 Pages Posted: 18 Jun 2001

See all articles by Helge Berger

Helge Berger

Free University Berlin - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Frank Westermann

University of Osnabrueck - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: April 2001

Abstract

Factor price equality across countries is an important implication of the Heckscher-Ohlin-Samuelson model of international trade. Although an influential theoretical result, the model has received surprisingly little empirical support. Burgman and Geppert (1993) argue that this might be due to the neglect of the non-stationarity property of the time series under consideration. Using a cointegration approach, they find strong evidence pointing towards a long-run relationship between factor prices in six major industrialized countries. The present paper shows, however, that there is only limited evidence of cointegration once the finite sample bias is taken into account. Moreover, there is only weak evidence of a significant cointegrating relationship when real (rather than nominal) labor cost data are used. There is some indication of long-run co-movements of real factor prices when using the statistically more powerful bivariate tests rather than a multivariate framework.

JEL Classification: F15

Suggested Citation

Berger, Helge and Westermann, Frank, Factor Price Equalization? The Cointegration Approach Revisited (April 2001). CESifo Working Paper Series No. 471. Available at SSRN: https://ssrn.com/abstract=271552

Helge Berger

Free University Berlin - Department of Economics ( email )

Boltzmannstr. 20
Berlin 14195, 14195
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HOME PAGE: http://www.wiwiss.fu-berlin.de/berger/eng_index.htm

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

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Munich, DE-81679
Germany
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HOME PAGE: http://www.CESifo.de

Frank Westermann (Contact Author)

University of Osnabrueck - Department of Economics ( email )

Rolandstr. 8
Osnabrueck, D-49069
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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