Factor Price Equalization Theory and Evidence.pdf

Jwrnal of Etono~nicInrepnriun 8(1). Spring 1993. 1-32. Factor Price Equalization: Theory and Evidence Farhad Rassekh U ~ ~ i w rof~Hutfwdi y Henry Thompson* Auburn University Abstract Sr~rder~tsof intcrnariorro~economics have absorbed rhe facrorprice equalization (FPE)theorem over recent decades. I f may be time ro reconsider rharfacrvrprices ~vouldlikely converge ourside rhe contexf ofthe formal Heckrcher-Ohlin-Lcrner Sarnuelsun rnodrl. This paper reviews the thcorerical evolution of FPE and the rnlpiricul evidence regordins ;he influence vf trade on the in~rrnationalpbtlern of . .. . facrvr.prices. This paper examines the status of factor price equalization (FPE) as a scienrific hypothesis. Every college :etunt af inlemational economics is exposed to FPEin one fom or imorhet Intematiooal wde theorisu doing rekmh in competitive models typically accept FPE as a pw~digmand favor frer Ira. Trade rheorists doing research in smtegic models of imperfect competition swm less inclined to .. do either. Ultimately, empirical tcsts of FPEshould carry the ddy. . ..: , .: . . The first section of this paper reviews the theoretical background of FPE and notes rhe tendency for trade to cause factor price convergence (FPC) outside [he *~;uhudRassekh: Depanmcnr of Econarnics. Univrrsiw of Haford. We% HarTford.