Working Paper: NBER ID: w11448
Authors: Andrew B. Bernard; Raymond Robertson; Peter K. Schott
Abstract: Deardorff [Journal of International Economics 36 (1994) 167-175] offers an intuitively appealing test for factor price equality (FPE). He demonstrates that FPE is impossible if the set (i.e., lens) of points defined by regional factor abundance vectors does not lie within the set of points defined by goods' input intensities. This note demonstrates that empirical implementation of the lens condition is problematic if the "true" number of either goods or regions is unknown. We show that satisfaction of the lens condition is more likely when goods are relatively disaggregate compared to regions.
Keywords: factor price equality; lens condition; data aggregation
JEL Codes: F11; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| aggregation of goods (E10) | satisfaction of lens condition (L15) |
| disaggregation of goods (F12) | satisfaction of lens condition (L15) |
| industry lens size (L63) | likelihood of finding a violation of lens condition (C20) |
| region lens size (R12) | likelihood of finding a violation of lens condition (C20) |
| lack of violation of lens condition (C20) | confirmation of FPE (F53) |