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Topic: Factor price equalization theorem

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Bertil Ohlin

	Chapter 4
		With no trade, the price of a factor will be "high" in the country in which it is scarce, and "low" in the country in which it is abundant.
		The shift to free trade increases the factor's price in the abundant country and decreases its price in the scarce country.
		Under certain assumptions free trade will equalize not only commodity prices between countries but also factor prices, so that all laborers will earn the same wage rate and all units of land will earn the same rental return in both countries regardless of the factor supplies or the demand patterns in the two countries.
	www.wright.edu /~tdung/Chapter4_Pugel.htm (2004 words)

	Stolper-Samuelson theorem - Wikipedia, the free encyclopedia
		The Stolper-Samuelson theorem is a basic theorem in trade theory.
		The Stolper-Samuelson theorem is closely linked to the factor price equalization theorem, which states that, regardless of international factor mobility, factor prices will tend to equalize across countries that do not differ in technology.
		With P(W) standing for the price of wheat, r and w for rent and wages, and c and d for the respective amount of land and labour used.
	en.wikipedia.org /wiki/Stolper-Samuelson_theorem (529 words)

	Factor price equalization - Wikipedia, the free encyclopedia
		Factor price equalization is an economic theory, which states that the relative prices for two identical factors of production in the same market will eventually equal each other because of competition.
		Whichever factor receives the lowest price before two countries integrate economically and effectively become one market will therefore tend to become more expensive relative to other factors in the economy, while those with the highest price will tend to become cheaper.
		An often-cited example of factor price equalization is wages.
	en.wikipedia.org /wiki/Factor_price_equalization (268 words)

	International Economics Glossary: F
		The degree to which a factor of production, such as labor or capital, is able to move, either among industries or between countries, in response to differences in its factor price, thus tending to eliminate such differences.
		One of the major theoretical results of the Heckscher-Ohlin Model with at least as many goods as factors, showing that free and frictionless trade will cause FPE between two countries if they have identical, linearly homogeneous technologies and their factor endowments are sufficiently similar to be in the same diversification cone.
		In anti-dumping cases, the price to which the export price is compared, which is either the price charged in the exporter's own domestic market or some measure of their cost, both adjusted to include any transportation cost and tariff needed to enter the importing country's market.
	www-personal.umich.edu /~alandear/glossary/f.html (2666 words)

	[Nep-int] 2005-04-16, 48 papers (Site not responding. Last check: 2007-11-03)
		This paper provides a formal proof of the Factor Price Equalization Theorem within the Heckscher Ohlin model derived by Ronald W. Jones in “The Structure of Simple General Equilibrium Models” (1965), where formal proof is provided for the Heckscher Ohlin, Stolper Samuelson and Rybczynski Theorems.
		These and other “structural factors”, weaken the negotiating capacity of developing countries and the outcome of their bargaining, is likely to be an “unequal exchange of concessions”.
		The period under analysis is 1980-2001 and the main findings are that the four countries have a high to moderate synchronization of their export prices, a moderate to low synchronization of their import prices, and a low synchronization of their terms of trade.
	lists.repec.org /pipermail/nep-int/2005-April/000001.html (8086 words)

	PKT message, Wages and Global Factor Price Equalization
		Global factor price equalization, at the lower global wage level, thus comes about through the workings of the visible hand of corporations, rather than the invisible hand of "free markets", as envisaged by the neoclassical school.
		The theorem of global factor price equalization is "nonergodic", meaning that it is a tendency, but not like a law of physics.
		In particular, it must be emphasized that the theorem of factor price equalization, as inherited from the neoclassical school, does not specify at which price/wage level equalization takes place.
	archives.econ.utah.edu /archives/pkt/1995m12-d/msg00023.htm (1555 words)

	Dignus Mercede - Essay and course work help in Business and Law (Site not responding. Last check: 2007-11-03)
		The factor price equalization theorem gives conditions under which trade in commodities is a perfect substitute for the international mobility of factors.
		This theorem states: If two countries have the same constant returns to scale technology with no factor intensity reversals then (subject to a conditioned mentioned below) the country has a comparative advantage in (and therefore exports) the commodity that uses intensively the factor in which the country is relatively well endowed.
		There are different versions of this theorem, the "price version" and "quantity version"; in the latter, the need for an additional condition accounts for the qualifier in my statement of the theorem.
	g.msn.com /9SE/1?http://www.dignusmercede.com/index.php?page=international_trade_business&&DI=6244&IG=c837a29ed45745dbb85684f4d7982fdb&POS=12&CM=WPU&CE=9&CS=AWP&SR=9 (2221 words)

	Implications of the HO model (Site not responding. Last check: 2007-11-03)
		Then each country sells their exports to the other at a price greater than the cost of production of the exporting country but less than the cost of production in the importing country.
		Recall that the price of an input was cheaper in the country that had relatively more of it.
		Theorem: The returns to a factor a country has relatively more of will increase with trade while the returns to the other factor will decrease.
	academics.vmi.edu /Econ_ab/HOimplic.htm (560 words)

	[No title]
		Factor Price Equalization Factor Price Equalization Theorem Under the assumptions of the factor proportions model, uninterrupted trade will bring about equalization of goods prices and factor prices across nations.
		Wages, interest, and rental payments Stolper—Samuelson Theorem The theory that, in the context of the factor proportions model, free trade raises the earnings of the nation’s relatively abundant factors and lowers the earnings of the relatively scarce factors.
		The Rybczynski Theorem (T. Rybczynski) The theory that if a nation experiences an increase in the amount of a resource, it will produce more of the good that uses the resource relatively intensively in its production process and produce less of the other good.
	www.calstatela.edu /faculty/rcastil/BUS_515/Lecture3.doc (411 words)

	Trade: Chapter 60-0: The Heckscher-Ohlin (Factor Proportions) Model Overview
		The theorem was originally developed to illuminate the issue of how tariffs would affect the incomes of workers and capitalists (i.e., the distribution of income) within a country.
		However, once goods prices are equalized, as they are in free trade, the value of marginal products are also equalized between countries and hence the countries must also share the same wage rates and rental rates.
		The theorem is useful in addressing issues such as investment, population growth and hence labor force growth, immigration and emigration, all within the context of the H-O model.
	internationalecon.com /Trade/Tch60/T60-0.php (2667 words)

	Heckscher-Ohlin Model
		However, even if some of the assumptions are violated, international trade has a tendency to equalize factor prices; it will remove the wage gaps between countries, despite the constraint that trading countries impose on the movement of factors, in particular, on the movement of workers.
		The net effect is that all factor prices are the same within a country.
		An arbitrary pair of factor prices (w,r) cannot prevail, because it causes the economy to specialize in one good.
	www.econ.iastate.edu /classes/econ355/choi/ho.htm (2247 words)

	Lecture 2 Notes
		The growth of one factor relative to others raises the output of the sectors using it intensively and reduces the outputs of the other sectors.
		Under assumptions (1)-(7), moving from no trade to free trade unambiguously raises the returns to the factor used intensively in the rising-price industry (land) and lowers the return to the factor used intensively in the falling-price industry (labor), regardless of which goods the sellers of the two factors prefer to consume.
		The more a factor is specialized into the production of exports the more it gains from trade; the more a factor is specialized in the production of importable goods, the more it stands to lose from trade.
	www.personal.psu.edu /~dxl31/ec340/lecture2.html (878 words)

	Trade: Chapter 60-14: Factor-Price Equalization
		Simply stated the theorem says that when the prices of the output goods are equalized between countries as they move to free trade, then the prices of the factors (capital and labor) will also be equalized between countries.
		The theorem derives from the assumptions of the model, the most critical of which is the assumption that the two countries share the same production technology and that markets are perfectly competitive.
		The difference in prices alone is sufficient to cause a deviation in wages and rents between countries, because it affects the marginal productivity.
	internationalecon.com /Trade/Tch60/T60-14.php (390 words)

	Paul SAMUELSON
		His Foundations (1947) are responsible for the envelope theorem and the full characterization of the cost function.
		He demonstrated one of the first remarkable "Non-Substitution" theorems (1951) and, in his famous paper with Solow (1953), initiated the analysis of dynamic Leontief systems.
		In international trade theory, he is responsible for the Stolper-Samuelson Theorem and, independently of Lerner, the Factor Price Equalization theorem (1948, 1949, 1953) as well as (finally) resolving the age-old "transfer problem" relating terms of trade and capital flows a well as the Marxian transformation problem (1971) and other issues in Classical economics (1957, 1978).
	cepa.newschool.edu /het/profiles/samuelson.htm (1205 words)

	Re: Heckscher-Ohlin: empirical validation?
		That > > is, opening foreign factor markets up to trade will only result > > in factor prices becoming equal, when corrected for productivity > > differences, faster.
		As far as I'm concerned, the Stolper-Samuelson and factor-price equalization "theorems" are part of the HOS theory.
		In recent years the pure theory of trade has been reformulated, using a 'classical' approach to the theory of value and distribution and paying special attention to the fact that capital consists of produced means of production.
	www.talkaboutinvestments.com /group/sci.econ/messages/205970.html (679 words)

	Globalization
		And the prices of these factors of production are largely determined by their availability and use.
		The reason for this is quite simple: the price of a computer or a t-shirt is determined largely by the cost of the land, labor, and capital that was used to make it; and the cost of that land, labor, and capital is determined by its initial scarcity and its use.
		This theory of wage (price) equalization goes a long way toward explaining why labor unions in the US comprised of workers with lower levels of education are likely to lobby very hard against trade liberalization.
	web.uncg.edu /dcl/courses/global/unit2/part5.asp (628 words)

	International Economics - 11th Edition: CHAPTER 4 QUIZ
		Given certain conditions and assumptions, free trade will equalize not only commodity prices but also the prices of individual factors between the two countries, so that all laborers will earn the same wage rate and all units of land will earn the same rental return in both countries even if factors cannot migrate between countries.
		a factor of production that is the same share of the final value of all goods produced in a country.
		a factor's price changes by a greater percentage than the change in the price of the good that caused the factor price change.
	www.mhhe.com /economics/pugel/students/quiz4.mhtml (363 words)

	Amazon.com: "factor price equalization": Key Phrase page (Site not responding. Last check: 2007-11-03)
		Moreover, under the conditions giving rise to factor price equalization, resource allocation under free trade and factor immobility is exactly the same as under perfect factor mobility (see below).
		namely the differences in domestic factor prices, to be eliminated by trade.
		This conjecture is the factor price equalization hypothesis.
	www.amazon.com /phrase/factor-price-equalization (562 words)

	Amazon.com: "price equalization theorem": Key Phrase page (Site not responding. Last check: 2007-11-03)
		Despite the absence of any formal apparatus, Heckscher's article not only stated the factor price equalization theorem unequivocally but showed a full awareness of its implications.
		The factor price equalization theorem goes further, showing that under certain conditions the returns to different factors, that is land rents, wage rates and profit...
		The theorem postulates that the relative and absolute prices...
	www.amazon.com /phrase/price-equalization-theorem (549 words)

	[No title]
		a) will increase the price of the export good in the home market and decrease the utility of home consumers.
		b) will decrease the price of the export good in the home market and increase the utility of home consumers.
		d) can lead to a higher import price in the importing country in the large country case.
	darkwing.uoregon.edu /~bruceb/strfinal.htm (1147 words)

	Factor price equalization - Definition from Investor Dictionary - Define meaning of the word Factor price equalization
		Factor price equalization - Definition from Investor Dictionary - Define meaning of the word Factor price equalization
		A geometrical treatment of factor price equalization and factor mobility (Working paper)
		Trade patterns in the Hecksher-Ohlin model without factor price equalization (Research report - The Hebrew University of Jerusalem, Department of Economics ; no. 57)
	www.investordictionary.com /definition/factor+price+equalization.aspx (341 words)

	Paul Anthony Samuelson, Biography: The Concise Encyclopedia of Economics: Library of Economics and Liberty
		In a 1938 article Samuelson introduced the concept of "revealed preference." His goal was to be able to tell by observing a consumer's choices whether he or she was better off after a change in prices.
		Swedish economist Bertil Ohlin had argued that international trade would tend to equalize the prices of factors of production.
		The theorem he proved is called the Factor Price Equalization Theorem.
	www.econlib.org /library/Enc/bios/Samuelson.html (1024 words)

	[No title] (Site not responding. Last check: 2007-11-03)
		In general, if the stock of labor rises, in general it is possible that either: output of the labor intensive good may fall, or output of the capital intensive good may rise, but not both.
		However, it may appear that the FPE is extremely unlikely to hold in that factor prices will have to differ in a two country world with three goods if all three goods are to be produced somewhere.
		In the two good model, factor prices equalize provided incomplete specialization arises, which in turn depends on factor endowments falling within the 'cones of diversification' of both economies.
	www.econ.usu.edu /jgilbert/Teaching/7400/Lectures/Lecture06.ppt (669 words)

	Econ 303: International Economics (Site not responding. Last check: 2007-11-03)
		At the same time, the price of telephones rises in Laboria and falls in Sagro.
		In the long run all workers see their wages fall as labor is released from the labor-intensive industry but it is not needed in great amounts in the land -intensive bread industry.
		If the factor price equalization theorem holds, the wages of the abundant workers in Laboria should rise to meet the falling wages of the scarce workers in Sagro.
	www.sonoma.edu /people/Benito/Econ303/answers3.html (298 words)

	Heckscher-Ohlin: empirical validation? (Site not responding. Last check: 2007-11-03)
		factor used relatively more intensively in that commodity.
		equalization "theorems" are part of the HOS theory.
		factors (land) is replaced by a factor called 'capital', the
	www.groupsrv.com /science/ptopic23385.html (3459 words)

	Asset prices shares
		Simply stated the theorem says that when the prices of the output goods are equalized between countries, as countries move to free trade, then the prices of the factors (capital and labor) will also be equalized between countries.
		With US prices up 60 per cent since 2000 and even higher price inflation in many other countries it is not hard to imagine a collapse, especially in frenzied regional markets such as California — which, after all, still has a larger economy than China’s.
		When interest rates spike upwards, asset prices crash or for any other reason lots of investments have to be unwound in a hurry, banks may be looking for liquidity rather than supplying it to others to keep markets orderly.
	www.internetional.se /shares.htm (13941 words)

	[No title]
		Yet, the factor price equalization theorem suggests an important policy alternative:Allow free trade in outputs, specialize in labor-intensive production, and export labor indirectly in the form of labor-intensive goods.
		At least in the short run within each country the mobility of factors may be imperfect.
		Thus, the short-run effects of (free) trade may not be the same long-run effects explained by Stolper-Samuelson and factor price equalization theorem.
	www.oswego.edu /~atri/Eco344-Lec/FactorPrices.ppt (1003 words)

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