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Factor Price Equalization in the UK?

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

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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3523.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3523
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  11. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott & Helen Simpson, 2002. "Factor Price Equalization in the UK?," Yale School of Management Working Papers ysm287, Yale School of Management.
  12. 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.
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