On the Likelihood of Factor Price Equalization with Nontraded Goods

Alan Deardorff and Paul Courant

International Economic Review, 1990, vol. 31, issue 3, 589-96

Abstract: It is argued that nontraded goods reduce the likelihood of factor price equalization. Specifically, the addition of nontraded goods to a small, open-economy Heckscher-Ohlin model with any number of goods reduces the size of the cone of diversification by the fraction of income spent on nontraded goods. This in turn may be regarded as reducing by a comparable amount the likelihood that a country's factor endowments will lie within that cone and, thus, the likelihood of factor price equalization. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1990
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Working Paper: ON THE LIKELIHOOD OF FACTOR PRICE EQUALIZATION WITH NONTRADED GOODS (1989)
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