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Factor Price Equalization in the UK?

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  • Andrew B. Bernard
  • Stephen Redding
  • Peter K. Schott
  • Helen Simpson

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.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0547.

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Date of creation: Sep 2002
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Handle: RePEc:cep:cepdps:dp0547

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Elative Factor Prices; Diversification Cones; Technology; Economic Geography;

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References

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Citations

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Cited by:
  1. Xiang, Chong, 2007. "Diversification cones, trade costs and factor market linkages," Journal of International Economics, Elsevier, vol. 71(2), pages 448-466, April.
  2. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2002. "Factor price equalization in the UK?," LSE Research Online Documents on Economics 3704, London School of Economics and Political Science, LSE Library.
  3. Leena Kerkelä & Aki Kangasharju & Sari Pekkala, 2003. "Factor Price Equalization in Finland," ERSA conference papers ersa03p394, European Regional Science Association.
  4. Ethan Lewis, 2004. "How did the Miami labor market absorb the Mariel immigrants?," Working Papers 04-3, Federal Reserve Bank of Philadelphia.
  5. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2004. "Relative wage variation and industry location," LSE Research Online Documents on Economics 3701, London School of Economics and Political Science, LSE Library.
  6. Patricia Rice & Tony Venables, 2004. "Spatial determinants of productivity: analysis for the regions of Great Britain," LSE Research Online Documents on Economics 2040, London School of Economics and Political Science, LSE Library.
  7. Dustmann, Christian & Glitz, Albrecht, 2011. "How Do Industries and Firms Respond to Changes in Local Labor Supply?," IZA Discussion Papers 6257, Institute for the Study of Labor (IZA).
  8. Ethan Lewis, 2003. "Local, open economies within the U.S.: how do industries respond to immigration?," Working Papers 04-1, Federal Reserve Bank of Philadelphia.
  9. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, vol. 88(11), pages 2283-2299, September.

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