TESTING THE FACTOR PRICE EQUALIZATION THEOREM IN THE SIXTEEN EUROPEAN COUNTRIES

Authors : Halit YANIKKAYA

Pages : 87-95

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Publication Date : 2002-06-30

Article Type : Research Paper

Abstract :The factor price equalization theorem States that trade in commodities through their indirect effects on factor prices tends to equalize factor revvards internationally although it is most unlikely to happen in the real world. Thus, this paper estimates factor price convergence rather than factor-price equalization in the sixteen European countries. First, graphical presentation of the data shows the convergence of factor prices during the sample period. Then, the statistically significant and negative coefficient for trade openness provides considerable evidence for the empirical relevance of the factor price convergence theorem, at least in the Europe-16. Conditional on the FPE theorem holds, we also distinguish between “high wage” countries and “low wage” countries.
Keywords : The factor price equalization theorem