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The Possibility of Factor Price Equalization, Revisited

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  • Deardorff, A.V.

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.
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Suggested Citation

  • Deardorff, A.V., 1991. "The Possibility of Factor Price Equalization, Revisited," Working Papers 277, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:277
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