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Factor Price Equalization in the UK?

  • Bernard, Andrew B
  • Stephen Redding
  • Peter K. Schott

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 Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 21.

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Date of creation: 04 Jun 2003
Date of revision:
Handle: RePEc:ecj:ac2003:21
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