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Factor Price Equalization in the UK?

Author

Listed:
  • Andrew B. Bernard

    (Tuck School of Business)

  • Stephen J. Redding

    (London School of Economics & Political Science (LSE))

  • Peter K. Schott

    (School of Management)

  • Helen Simpson

    (General)

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

  • Andrew B. Bernard & Stephen J. Redding & Peter K. Schott & Helen Simpson, 2002. "Factor Price Equalization in the UK?," Yale School of Management Working Papers ysm287, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm287
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Leena Kerkelä & Aki Kangasharju & Sari Pekkala, 2003. "Factor Price Equalization in Finland," ERSA conference papers ersa03p394, European Regional Science Association.
    5. 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.
    6. 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.
    7. Patricia Rice & Anthony Venables, 2003. "Equilibrium Regional Disparities: Theory and British Evidence," Regional Studies, Taylor & Francis Journals, vol. 37(6-7), pages 675-686.
    8. Xiang, Chong, 2007. "Diversification cones, trade costs and factor market linkages," Journal of International Economics, Elsevier, vol. 71(2), pages 448-466, April.
    9. Alina Barnett & Sandra Batten & Adrian Chiu & Jeremy Franklin & Maria Sebastia-Barriel, 2014. "The UK productivity puzzle," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 114-128.
    10. Ethan Lewis, 2004. "How did the Miami labor market absorb the Mariel immigrants?," Working Papers 04-3, Federal Reserve Bank of Philadelphia.
    11. Eiichi Tomiura, 2005. "Factor Price Equalization In Japanese Regions," The Japanese Economic Review, Japanese Economic Association, vol. 56(4), pages 441-456, December.
    12. Andrew B. Bernard & Stephen Redding & Peter K. Schott & Helen Simpson, 2002. "Factor Price Equalization in the UK?," CEP Discussion Papers dp0547, Centre for Economic Performance, LSE.
    13. Carbajal-De-Nova, Carolina, 2017. "Wage gaps and manufacturing output: A comparison between production workers in Mexico and the United States," MPRA Paper 93099, University Library of Munich, Germany, revised 14 Sep 2017.

    More about this item

    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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