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Factor Price Equalization in the UK?

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

Abstract

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.

Suggested Citation

  • Bernard, Andrew B & Stephen Redding & Peter K. Schott, 2003. "Factor Price Equalization in the UK?," Royal Economic Society Annual Conference 2003 21, Royal Economic Society.
  • Handle: RePEc:ecj:ac2003:21
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    References listed on IDEAS

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    Cited by:

    1. Bernard, Andrew B. & Redding, Stephen J. & Schott, Peter K. & Simpson, Helen, 2002. "Factor Price Equalization in the UK?," CEPR Discussion Papers 3523, C.E.P.R. Discussion Papers.
    2. Xiang, Chong, 2007. "Diversification cones, trade costs and factor market linkages," Journal of International Economics, Elsevier, vol. 71(2), pages 448-466, April.
    3. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2003. "Relative Wage Variation and Industry Location," NBER Working Papers 9998, National Bureau of Economic Research, Inc.
    4. Rice, Patricia & Venables, Anthony J. & Patacchini, Eleonora, 2006. "Spatial determinants of productivity: Analysis for the regions of Great Britain," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 727-752, November.
    5. Barnett, Alina & Batten, Sandra & Chiu, Adrian & Franklin, Jeremy & Sebastia-Barriel, Maria, 2014. "The UK productivity puzzle," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 114-128.
    6. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, vol. 88(11), pages 2283-2299, September.
    7. Ethan Lewis, 2004. "How did the Miami labor market absorb the Mariel immigrants?," Working Papers 04-3, Federal Reserve Bank of Philadelphia.
    8. Christian Dustmann & Albrecht Glitz, 2015. "How Do Industries and Firms Respond to Changes in Local Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 711-750.
    9. Ethan Lewis, 2003. "Local, open economies within the U.S.: how do industries respond to immigration?," Working Papers 04-1, Federal Reserve Bank of Philadelphia.
    10. Leena Kerkelä & Aki Kangasharju & Sari Pekkala, 2003. "Factor Price Equalization in Finland," ERSA conference papers ersa03p394, European Regional Science Association.
    11. Eiichi Tomiura, 2005. "Factor Price Equalization In Japanese Regions," The Japanese Economic Review, Japanese Economic Association, vol. 56(4), pages 441-456.

    More about this item

    Keywords

    relative factor prices; diversification cones; technology; economic geography;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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