Factor Price Equalization in the UK?

44 Pages Posted: 11 Jul 2002 Last revised: 26 Sep 2022

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: July 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.

Suggested Citation

Bernard, Andrew B. and Redding, Stephen J. and Schott, Peter K. and Simpson, Helen, Factor Price Equalization in the UK? (July 2002). NBER Working Paper No. w9052, Available at SSRN: https://ssrn.com/abstract=318847

Andrew B. Bernard (Contact Author)

Dartmouth College - Tuck School of Business ( email )

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National Bureau of Economic Research (NBER)

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Stephen J. Redding

Princeton University ( email )

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Peter K. Schott

Yale University - School of Management ( email )

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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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United Kingdom

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