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Factor Price Equalization in the UK?

  • Andrew B. Bernard
  • Stephen Redding
  • Peter K. Schott
  • Helen Simpson

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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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0547.

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Date of creation: Sep 2002
Date of revision:
Handle: RePEc:cep:cepdps:dp0547
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  1. Andrew Bernard & Stephen Redding & Peter Schott & Helen Simpson, 2002. "Factor price equalisation in the UK," IFS Working Papers W02/11, Institute for Fiscal Studies.
  2. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2001. "Factor Price Equality and the Economies of the United States," NBER Working Papers 8068, National Bureau of Economic Research, Inc.
  3. Stephen Machin & John Van Reenen, 1998. "Technology And Changes In Skill Structure: Evidence From Seven Oecd Countries," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1215-1244, November.
  4. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, vol. 113(489), pages 666-694, 07.
  5. Antonio Ciccone, 1997. "Technology diffusion and the spatial distribution of wages in the US," Economics Working Papers 500, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 1999.
  6. Cameron, Gavin & Muellbauer, John, 2000. "Earnings Biases in the United Kingdom Regional Accounts: Some Economic Policy and Research Implications," Economic Journal, Royal Economic Society, vol. 110(464), pages F412-29, June.
  7. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  8. Jonathan Haskel & Matthew J. Slaughter, 1999. "Trade, Technology and U.K. Wage Inequality," NBER Working Papers 6978, National Bureau of Economic Research, Inc.
  9. 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.
  10. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Boston University - Institute for Economic Development 78, Boston University, Institute for Economic Development.
  11. Michael Devereux & Rachel Griffith & Helen Simpson, 1999. "The geographic distribution of production activity in the UK," IFS Working Papers W99/26, Institute for Fiscal Studies.
  12. Cameron, Gavin & Muellbauer, John, 1998. "The Housing Market and Regional Commuting and Migration Choices," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(4), pages 420-46, September.
  13. Katz, Lawrence F & Murphy, Kevin M, 1992. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 35-78, February.
  14. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  15. 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.
  16. repec:oup:qjecon:v:113:y:1998:i:4:p:1215-1244 is not listed on IDEAS
  17. repec:oup:qjecon:v:107:y:1992:i:1:p:35-78 is not listed on IDEAS
  18. Machin, Stephen, 1996. "Wage Inequality in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 47-64, Spring.
  19. 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.
  20. 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.
  21. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  22. Hughes, Gordon & McCormick, Barry, 1994. "Did Migration in the 1980s Narrow the North-South Divide?," Economica, London School of Economics and Political Science, vol. 61(244), pages 509-27, November.
  23. Jeffrey R. Bernstein & David E. Weinstein, 1998. "Do Endowments Predict the Location of Production? Evidence from National and International Data," NBER Working Papers 6815, National Bureau of Economic Research, Inc.
  24. 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.
  25. Steve Machin & Amanda Gosling, 1994. "What happened to the wages of men since the mid-1960s," Fiscal Studies, Institute for Fiscal Studies, vol. 15(4), pages 63-87, November.
  26. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
  27. Gilles Duranton & Vassilis Monastiriotis, 2002. "Mind the Gaps: The Evolution of Regional Earnings Inequalities in the U.K., 1982-1997," Journal of Regional Science, Wiley Blackwell, vol. 42(2), pages 219-256.
  28. repec:oup:qjecon:v:113:y:1998:i:4:p:1245-1279 is not listed on IDEAS
  29. 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.
  30. 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.
  31. 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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