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Were Heckscher and Ohlin Right? Putting the Factor-Price-Equalization Theorem Back into History

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  • Kevin O'Rourke
  • Jeffrey G. Williamson

Abstract

Due primarily to transport improvements, commodity prices in Britain and America tended to equalize 1870-1913. This commodity price equalization was not simply manifested by the great New World grain invasion of Europe. Rather, it can be documented for intermediate primary products and manufactures as well. Heckscher and, Ohlin, writing in 1919 and 1924, thought that these events should have contributed to factor price equalization. Based on Williamson's research reported elsewhere, Anglo-American real wages did converge over this period, and it was part of a general convergence between the Old and New World. This paper applies the venerable Heckscher-Ohlin trade model to the late 19th century Anglo-American experience and finds that they were right: at least half of the real wage convergence observed can be assigned to commodity price equalization. Furthermore, these events also had profound influences on relative land and capital scarcities. It appears that this late 19th century episode was the dramatic start of world commodity and factor market integration that is still ongoing today.

Suggested Citation

  • Kevin O'Rourke & Jeffrey G. Williamson, 1992. "Were Heckscher and Ohlin Right? Putting the Factor-Price-Equalization Theorem Back into History," NBER Historical Working Papers 0037, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberhi:0037 Note: DAE
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    1. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, pages 85-104.
    2. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(4), pages 423-453, November.
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    1. repec:eee:reveco:v:51:y:2017:i:c:p:535-544 is not listed on IDEAS
    2. Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, vol. 56(02), pages 389-428, June.
    3. Kevin H. O'Rourke & Jeffrey G. Williamson & T. J. Hatton, 1993. "Mass migration, commodity market integration and real wage convergence : the late nineteenth century Atlantic economy," Working Papers 199325, School of Economics, University College Dublin.
    4. Hatton, T.J. & Williamson, J.G., 1993. "Late-Comers to Mass Emigration: The Latin Experience," Harvard Institute of Economic Research Working Papers 1641, Harvard - Institute of Economic Research.
    5. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
    6. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    7. O'Rourke, K. & Williamson, J.G. & Hatton, T.J., 1993. "Mass Migration, Commodity Market Integration, and Real Wage Convergence: The Late Nineteenth Century Atlantic Economy," Harvard Institute of Economic Research Working Papers 1640, Harvard - Institute of Economic Research.
    8. Kim, Hyeongwoo & Thompson, Henry, 2014. "Wages in a factor proportions model with energy input," Economic Modelling, Elsevier, vol. 36(C), pages 495-501.

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