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Factor Price Equality and the Economies of the United States

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Author Info
Andrew B. Bernard
J. Bradford Jensen
Peter K. Schott

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Abstract

Do New York and Nashville face the same pressures from increased trade? This paper considers the role of international trade in shaping the product mix and relative wages for regions within the US. Using the predictions from a Heckscher-Ohlin trade model, we ask whether all the regions in the US face the same relative factor prices. Using the production side of the HO model, we derive a general test of relative factor price equality that is robust to unobserved regional productivity differences, unobserved regional factor quality differences, and variations in production technology across industries. Using data from 1972-1992, we reject the the hypothesis that all regions face the same relative factor prices in favor of an alternative with at least three distinct factor price cones. Sort regions into cones with similar relative factor prices, we find that industry mix varies systematically across the groups. Regions that switch cones over time have more churning of industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8068.

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Date of creation: Jan 2001
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Handle: RePEc:nbr:nberwo:8068

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F11 - International Economics - - Trade - - - Neoclassical Models of Trade

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October. [Downloadable!] (restricted)
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    Other versions:
  3. Robert C. Feenstra, 2000. "The Impact of International Trade on Wages," NBER Books, National Bureau of Economic Research, Inc, number feen00-1.
  4. Peter K. Schott, 2001. "Do Countries Specialize?," Yale School of Management Working Papers ysm173, Yale School of Management. [Downloadable!]
  5. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June. [Downloadable!]
    Other versions:
  6. Davis, Donald R. & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1997. "Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works," American Economic Review, American Economic Association, vol. 87(3), pages 421-46, June. [Downloadable!] (restricted)
  7. Andrew B. Bernard & J. Bradford Jensen, 1998. "Understanding Increasing and Decreasing Wage Inequality," NBER Working Papers 6571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Elhanan Helpman & Paul Krugman, 1987. "Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026258087x.
  9. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
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  11. Courant, Paul N & Deardorff, Alan V, 1992. "International Trade with Lumpy Countries," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 198-210, February. [Downloadable!] (restricted)
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  12. Deardorff, Alan V., 1994. "The possibility of factor price equalization, revisited," Journal of International Economics, Elsevier, vol. 36(1-2), pages 167-175, February. [Downloadable!] (restricted)
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  13. Repetto, A. & Ventura, J., 1997. "The Leontief-Trefler Hypothesis and Factor Price Insensitivity," Working papers 97-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier. [Downloadable!] (restricted)
  15. Wu, Ho-mou, 1987. "The equalization of factor prices in general equilibrium when commodities outnumber factors," Journal of International Economics, Elsevier, vol. 23(3-4), pages 343-356, November. [Downloadable!] (restricted)
  16. Hanson, Gordon H. & Slaughter, Matthew J., 2002. "Labor-market adjustment in open economies: Evidence from US states," Journal of International Economics, Elsevier, vol. 57(1), pages 3-29, June. [Downloadable!] (restricted)
  17. Topel, Robert H, 1994. "Regional Labor Markets and the Determinants of Wage Inequality," American Economic Review, American Economic Association, vol. 84(2), pages 17-22, May. [Downloadable!] (restricted)
  18. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June. [Downloadable!] (restricted)
  19. Heckman, James & Layne-Farrar, Anne & Todd, Petra, 1996. "Human Capital Pricing Equations with an Application to Estimating the Effect of Schooling Quality on Earnings," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 562-610, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kalemli-Ozcan, Sebnem & Reshef, Ariell & Sorensen, Bent E & Yosha, Oved, 2006. "Why Does Capital Flow to Rich States?," CEPR Discussion Papers 5635, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Lutz Hendricks, 2004. "Why Does Educational Attainment Differ Across U.S. States?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Markusen, James R. & Venables, Anthony J., 2005. "A Multi-Country Approach to Factor-Proportions Trade and Trade Costs," CEPR Discussion Papers 4872, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Andrew Bernard & Stephen Redding & Peter Schott & Helen Simpson, 2003. "Relative wage variation and industry location," IFS Working Papers W03/17, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  5. Michaels, Guy, 2007. "The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System," CEPR Discussion Papers 6056, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Peter K. Schott, 2001. "Do Rich and Poor Countries Specialize in a Different Mix of Goods? Evidence from Product-Level US Trade Data," NBER Working Papers 8492, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants," CEP Discussion Papers dp0584, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  8. Bernard, Andrew & Redding, Stephen J & Schott, Peter & Simpson, Helen, 2002. "Factor Price Equalization in the UK?," CEPR Discussion Papers 3523, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Peter M. Morrow, 2008. "East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage," Working Papers 575, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  10. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June. [Downloadable!]
    Other versions:
  11. Leena Kerkelä & Aki Kangasharju & Sari Pekkala, 2003. "Factor Price Equalization in Finland," ERSA conference papers ersa03p394, European Regional Science Association. [Downloadable!]
  12. Andrew B. Bernard & Raymond Robertson & Peter K. Schott, 2004. "Is Mexico A Lumpy Country?," NBER Working Papers 10898, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Helge Berger & Frank Westermann, 2001. "Factor Price Equalization? The Cointegration Approach Revisited," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  14. Paul Beaudry & David A. Green & Benjamin Sand, 2007. "Spill-Overs from Good Jobs," NBER Working Papers 13006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Guy Michaels, 2006. "The Effect of Trade on the Demand for Skill - Evidence from the Interstate Highway System," CEP Discussion Papers dp0772, Centre for Economic Performance, LSE. [Downloadable!]
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