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The possibility of factor price equalization, revisited

In: Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff

Author

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  • Alan V. Deardorff

    (Department of Economics, The University of Michigan, 240 Lorch Hall, Ann Arbor, MI 48109-1220, USA)

Abstract

This paper derives a condition for factor price equalization (FPE) in a Heckscher–Ohlin model with many goods, factors, and countries. Using Dixit and Norman's integrated world economy (IWE), two sets, called lenses, are constructed: one spanned by the factor vectors used to produce goods in the IWE; the other spanned by the countries' factor endowments. If the factor-endowment lens ever passes outside the factor-use lens, then FPE is impossible. In this sense, therefore, FPE requires that factor endowments vary less across countries than factor intensities vary across industries.

Suggested Citation

  • Alan V. Deardorff, 2011. "The possibility of factor price equalization, revisited," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 15, pages 155-163, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814340373_0015
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