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Pushing Economies (and Students) Outside the Factor Price Equalization Zone

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  • Paul Oslington
  • Isaac Towers

Abstract

Despite overwhelming empirical evidence of the failure of factor price equalization, most teaching of international trade theory (even at the graduate level) assumes that economies are incompletely specialized and that factor price equalization holds. The behavior of trading economies in the absence of factor price equalization is not well understood, and some major textbook treatments err. The authors map regions of specialization and diversification for standard competitive economies and show how outputs, goods, and factor prices change as economies move within and across different regions of diversification and specialization. Two examples of how the analysis can enrich graduate-level trade teaching are given: the substitutability of goods trade and factor movements, and debates over the trade and inequality.

Suggested Citation

  • Paul Oslington & Isaac Towers, 2009. "Pushing Economies (and Students) Outside the Factor Price Equalization Zone," The Journal of Economic Education, Taylor & Francis Journals, vol. 40(4), pages 422-436, October.
    • Handle: RePEc:taf:jeduce:v:40:y:2009:i:4:p:422-436
    DOI: 10.1080/00220480903238099
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    References listed on IDEAS

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    1. Borjas, George J. & Freeman, Richard B. (ed.), 1992. "Immigration and the Work Force," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226066332, November.
    2. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
    3. Paul Oslington, 2006. "The Theory of International Trade and Unemployment," Books, Edward Elgar Publishing, number 4244.
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    Cited by:

    1. Paul Oslington & Isaac Towers, 2010. "Trade, Migration, and Inequality in a World without Factor Price Equalization," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 650-662, September.

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