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Factor price equalisation in the UK

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Author Info

  • Andrew Bernard

    (Institute for Fiscal Studies and Dartmouth University)

  • Stephen Redding

    () (Institute for Fiscal Studies and University College London)

  • Peter Schott

    (Institute for Fiscal Studies and Yale University)

  • Helen Simpson

    () (Institute for Fiscal Studies and CMPO, Bristol)

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 Institute for Fiscal Studies in its series IFS Working Papers with number W02/11.

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Length: 65 pp
Date of creation: Jun 2002
Date of revision:
Handle: RePEc:ifs:ifsewp:02/11

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References

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  1. Berman, E. & Bound, J. & Machin, S., 1997. "Implications of Skill-Biased Technological Change: International Evidence," Papers 25, Centre for Economic Performance & Institute of Economics.
  2. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  3. Haskel, Jonathan & Slaughter, Matthew, 1999. "Trade, Technology and UK Wage Inequality," CEPR Discussion Papers 2091, C.E.P.R. Discussion Papers.
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  8. Bernard, Andrew B & Stephen Redding & Peter K. Schott, 2003. "Factor Price Equalization in the UK?," Royal Economic Society Annual Conference 2003 21, Royal Economic Society.
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  19. Griffith, Rachel, 1999. "Using the ARD Establishment Level Data to Look at Foreign Ownership and Productivity in the United Kingdom," Economic Journal, Royal Economic Society, vol. 109(456), pages F416-42, June.
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Citations

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Cited by:
  1. Bernard, Andrew B & Stephen Redding & Peter K. Schott, 2003. "Factor Price Equalization in the UK?," Royal Economic Society Annual Conference 2003 21, Royal Economic Society.
  2. Xiang, Chong, 2007. "Diversification cones, trade costs and factor market linkages," Journal of International Economics, Elsevier, vol. 71(2), pages 448-466, April.
  3. Andrew Bernard & Stephen Redding & Peter Schott & Helen Simpson, 2003. "Relative wage variation and industry location," IFS Working Papers W03/17, Institute for Fiscal Studies.
  4. Patricia Rice & Anthony J. Venables, 2004. "Spatial Determinants of Productivity: Analysis for the Regions of Great Britain," CEP Discussion Papers dp0642, Centre for Economic Performance, LSE.
  5. Ethan Lewis, 2004. "How did the Miami labor market absorb the Mariel immigrants?," Working Papers 04-3, Federal Reserve Bank of Philadelphia.
  6. Christian Dustmann & Albrecht Glitz, 2012. "How Do Industries and Firms Respond to Changes in Local Labor Supply?," Norface Discussion Paper Series 2012002, Norface Research Programme on Migration, Department of Economics, University College London.
  7. 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.
  8. Leena Kerkelä & Aki Kangasharju & Sari Pekkala, 2003. "Factor Price Equalization in Finland," ERSA conference papers ersa03p394, European Regional Science Association.

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