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How Likely Is Factor Price Equalization?

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Author Info

  • Bodil O. Hansen

    (Copenhagen Business School)

  • Hans Keiding

    (Department of Economics, University of Copenhagen)

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    Abstract

    The idea of treating factor price equalization as a situation, where the distribution of factors among countries is compatible with an equilibrium in an integrated world economy, has been refined to give the so-called lens condition for factor price equalization. In this paper, we show that the lens condition may be used to give estimates for the probability of factor price equalization when factors are distributed randomly among countries and, in addition, the techologies are sampled according to a given probability distribution. The estimates indicate that factor price equalization may occur less often than intuitively conceived.

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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2008/0810.pdf/
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    Bibliographic Info

    Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-10.

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    Length: 13 pages
    Date of creation: Apr 2008
    Date of revision:
    Handle: RePEc:kud:kuiedp:0810

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    Related research

    Keywords: international trade; Factor Price Equalization; lens condition;

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