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How Likely Is Factor Price Equalization?

Author

Listed:
  • Bodil O. Hansen

    (Copenhagen Business School)

  • Hans Keiding

    (Department of Economics, University of Copenhagen)

Abstract

The idea of treating factor price equalization as a situation, where the distribution of factors among countries is compatible with an equilibrium in an integrated world economy, has been refined to give the so-called lens condition for factor price equalization. In this paper, we show that the lens condition may be used to give estimates for the probability of factor price equalization when factors are distributed randomly among countries and, in addition, the techologies are sampled according to a given probability distribution. The estimates indicate that factor price equalization may occur less often than intuitively conceived.

Suggested Citation

  • Bodil O. Hansen & Hans Keiding, 2008. "How Likely Is Factor Price Equalization?," Discussion Papers 08-10, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0810
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2008/0810.pdf/
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    Keywords

    international trade; Factor Price Equalization; lens condition;

    JEL classification:

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

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