Factor Price Equalization

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Factor Price Equalization

The theory that the prices of two identical means of production in different areas will eventually equal each other. For example, if wages in one region exceed wages in another, they will gradually fall in the first region and rise in the second until they are the same. Factor price equalization works best when factor mobility exists. See also: Factor Price.
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However, factor price equalisation will occur over time, partly as a result of VFDI flows, and so VFDI may eventually be replaced by HFDI.
Multinational Firms in the World Economy
The first, the 'Convergence Model,' is structured according to comparative advantage and factor price equalisation.
How we Compete: What Companies around the World are doing to make it in today's Global Economy
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