Computational investigation of the feasibility of factor price equalization

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Computational investigation of the feasibility of factor price equalization

Nakamura, Kazuyuki

Letters in spatial and resource sciences, 07/2015, Volume: 8, Issue: 2

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We propose an empirical procedure for verifying the factor price equalization (FPE) condition. The FPE condition defined by Deardorff (J Int Econ 36:167–175, 1994 ) is converted to a standard linear programming problem. Although the procedure does not provide a graphical representation, it can be applied for any number of primary factors of production. In addition, based on the solution vector of the linear programming problem, we can find what quantities of the primary factors of production should be reallocated between which regions to satisfy the FPE condition when the condition does not hold.

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