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Were Heckscher and Ohlin Right? Putting the Factor-Price-Equalization Theorem Back into History

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Author Info

  • Kevin O'Rourke
  • Jeffrey G. Williamson

Abstract

Due primarily to transport improvements, commodity prices in Britain and America tended to equalize 1870-1913. This commodity price equalization was not simply manifested by the great New World grain invasion of Europe. Rather, it can be documented for intermediate primary products and manufactures as well. Heckscher and, Ohlin, writing in 1919 and 1924, thought that these events should have contributed to factor price equalization. Based on Williamson's research reported elsewhere, Anglo-American real wages did converge over this period, and it was part of a general convergence between the Old and New World. This paper applies the venerable Heckscher-Ohlin trade model to the late 19th century Anglo-American experience and finds that they were right: at least half of the real wage convergence observed can be assigned to commodity price equalization. Furthermore, these events also had profound influences on relative land and capital scarcities. It appears that this late 19th century episode was the dramatic start of world commodity and factor market integration that is still ongoing today.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Historical Working Papers with number 0037.

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Date of creation: Jun 1992
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Publication status: published as "Late 19th Century Anglo-American Factor Price Convergence: Were Heckscherand Ohlin Right?" Journal of Economic History, vol. 54, no. 4 (December 1994): 892-916
Handle: RePEc:nbr:nberhi:0037

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Cited by:
  1. Hyeongwoo Kim & Henry Thompson, 2012. "Wages in a Factor Proportions Model with Energy Input," Auburn Economics Working Paper Series auwp2012-05, Department of Economics, Auburn University.
  2. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  3. Michael D. Bordo, 1995. "The Gold Standard as a `Good Housekeeping Seal of Approval'," NBER Working Papers 5340, National Bureau of Economic Research, Inc.

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