Working Paper: NBER ID: w9052
Authors: Andrew B. Bernard; Stephen Redding; Peter K. Schott; Helen Simpson
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.
Keywords: No keywords provided
JEL Codes: F1; C1; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| regional factor quality differences (R11) | observed wage differences (J31) |
| unobserved variation in regional factor quality (F29) | output (C67) |
| unobserved variation in regional factor quality (F29) | wages (J31) |
| multiple Heckscher-Ohlin cones of diversification (F12) | deviations from factor price equality (F16) |
| aspects of new economic geography (R32) | deviations from factor price equality (F16) |