First of all, the abstract theories behind the formal models lead to the theorem of factor price equalization between trading partners, and these factor prices are endogenous to the system, that is, determined within the solution of the system.
For a wide variety of--BUT NOT ALL--conditions, using the theory based on these assumptions just stated, free trade will lead to factor price equalization among countries.
20) This implies a tendency towards factor price equalization for the same type of labour across the trading partners.
Factor price equalization refers to an equality of factor prices of homogeneous factors of production.
This sea of excess labor accentuates the downward pressures of a skill-intensive technology shift and global
factor price equalization.
14) Moreover, models that assume local
factor price equalization have other drawbacks.
Free international trade brings about a tendency (and only a tendency) towards
factor price equalization.
Given that all of the Heckscher-Ohlin-Samuelson-Jones pre-requisites are satisfied in this problem, that is, that both countries use the same linear homogeneous functions for abatement and sequestration as well as for production, that the level of pollution is global, and that pollution damage is identically multiplicative, the
factor price equalization theorem must in fact hold.
The inelasticity of these [Delta]w/[Delta]v terms is called near
factor price equalization (NFPE).
The
factor price equalization theorem in its most stringent form precdicts that if goods sell for the same price regardless of where they are produced, then workers who produce them will earn equal wages.
