AN EMPIRICAL-TEST OF THE DIXIT-NORMAN APPROACH TO FACTOR PRICE EQUALIZATION, USING COINTEGRATION TECHNIQUES

Factor price equalization (FPE) occurs when international trade equili brium reproduces the integrated world equilibrium (IWE). This allows a straightforward test of a necessary condition for FPE provided one ha s an idea of the IWE. The author considers Germany as such for France, Belgium and the Netherlands. Cointegration estimation techniques are preferred to SURE, because of endogenity and nonstationarity of the va riables. Using the coefficient restrictions, estimation is performed w ith French and Belgian factor endowments and German sector allocations . Finally, FPE is checked by testing appropriate coefficient restricti ons. Concluding, the author finds no long-term trade equilibrium with FPE for the countries considered. JEL no. F11, F12