| Abstract: | Factor Price Equalization: A Cointegration Approach. — Previous studies of factor price equalization have generated mixed results. It is argued that the limited success often results from the fact that labor cost time series are nonstationary, and hence traditional OLS models are misspecified. In this paper, the cointegration approach is utilized to test for the existence of a long-run relationship between factor prices. It is shown that indices of labor cost per unit of manufacturing output for six major industrialized nations are indeed cointegrated. These results support the hypothesis that factor prices possess a long-run equilibrium relationship. |
