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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.
Authors
Stephen Redding
Helen Simpson
Dartmouth University
Andrew is the Jack Byrne Professor of International Economics at the Tuck School of Business at Dartmouth and an International fellow of IFS. His research interests include international trade and investment and he specializes in firm responses to globalization.
Yale University
Peter is an Associate Professor of Economics at the Yale School of Management and an International Fellow of IFS.
Working Paper details
- DOI
- 10.1920/wp.ifs.2002.0211
- Publisher
- IFS
Suggested citation
Bernard, A et al. (2002). Factor price equalisation in the UK. London: IFS. Available at: https://ifs.org.uk/publications/factor-price-equalisation-uk (accessed: 19 May 2024).
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