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Factor Price Equality and the Economies of the United States

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  • Andrew B. Bernard
  • J. Bradford Jensen
  • Peter K. Schott

Abstract

Do New York and Nashville face the same pressures from increased trade? This paper considers the role of international trade in shaping the product mix and relative wages for regions within the US. Using the predictions from a Heckscher-Ohlin trade model, we ask whether all the regions in the US face the same relative factor prices. Using the production side of the HO model, we derive a general test of relative factor price equality that is robust to unobserved regional productivity differences, unobserved regional factor quality differences, and variations in production technology across industries. Using data from 1972-1992, we reject the the hypothesis that all regions face the same relative factor prices in favor of an alternative with at least three distinct factor price cones. Sort regions into cones with similar relative factor prices, we find that industry mix varies systematically across the groups. Regions that switch cones over time have more churning of industries.

Suggested Citation

  • Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2001. "Factor Price Equality and the Economies of the United States," NBER Working Papers 8068, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8068
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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. Guy Michaels, 2008. "The Effect of Trade on the Demand for Skill: Evidence from the Interstate Highway System," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 683-701, November.
    3. Kwok Tong Soo, 2007. "Endogenous Economic Policy And The Structure Of Production: Theory And Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 220-253, May.
    4. Sebnem Kalemli-Ozcan & Ariell Reshef & Bent E Sørensen & Oved Yosha, 2010. "Why Does Capital Flow to Rich States?," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 769-783, November.
    5. Leena Kerkelä & Aki Kangasharju & Sari Pekkala, 2003. "Factor Price Equalization in Finland," ERSA conference papers ersa03p394, European Regional Science Association.
    6. Helge Berger & Frank Westermann, 2001. "Factor price equalization? The cointegration approach revisited," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 525-536, September.
    7. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2003. "Relative wage variation and industry location," IFS Working Papers W03/17, Institute for Fiscal Studies.
    8. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott & Helen Simpson, 2008. "Relative Wage Variation and Industry Location in the United Kingdom," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(4), pages 431-459, August.
    9. Markusen, James R. & Venables, Anthony J, 2005. "A Multi-Country Approach to Factor-Proportions Trade and Trade Costs," CEPR Discussion Papers 4872, C.E.P.R. Discussion Papers.
    10. Brakman, Steven & van Marrewijk, Charles, 2013. "Lumpy countries, urbanization, and trade," Journal of International Economics, Elsevier, vol. 89(1), pages 252-261.
    11. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Survival of the best fit: Exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants," Journal of International Economics, Elsevier, vol. 68(1), pages 219-237, January.
    12. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
    13. Andrew B. Bernard & Raymond Robertson & Peter K. Schott, 2010. "Is Mexico a Lumpy Country?," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 937-950, November.
    14. Lutz Hendricks, 2004. "Why does educational attainment differ across U.S. states?," 2004 Meeting Papers 361, Society for Economic Dynamics.
    15. Paul Beaudry & David A. Green & Benjamin Sand, 2007. "Spill-Overs from Good Jobs," NBER Working Papers 13006, National Bureau of Economic Research, Inc.
    16. Peter K. Schott, 2001. "Do Rich and Poor Countries Specialize in a Different Mix of Goods? Evidence from Product-Level US Trade Data," NBER Working Papers 8492, National Bureau of Economic Research, Inc.
    17. Peter M. Morrow, 2008. "East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage," Working Papers 575, Research Seminar in International Economics, University of Michigan.

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    JEL classification:

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

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