Factor Price Equalization in the UK?

44 Pages Posted: 21 Jun 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: June 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: F11, F14, C14, J30

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K. and Simpson, Helen, Factor Price Equalization in the UK? (June 2002). Available at SSRN: https://ssrn.com/abstract=316585 or http://dx.doi.org/10.2139/ssrn.316585

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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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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Helen Simpson

CMPO ( email )

University of Bristol
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Bristol, BS8 ITX
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

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