Factor price equalization is an economic theorem, developed by Paul Samuelson in 1948, stating that under free trade in goods between countries that share the same technology and face the same goods prices, the prices of identical factors of production, such as wages or the return on capital, tend toward equality across those countries even without any actual movement of labor or capital between them. The result rests on a stylized two good, two factor model of trade and is treated as an extension of the Heckscher-Ohlin model.
Facts
Statementthe prices of elements (labor and capital) will be equalized across nations once output commodities are equalized as nations transition to free trade 1 Classification
Statement FormCharacterization Theorem 1 Connections
Sources
1. Factor Price Equalization - WallStreetMojo
Definition section
The factor price equalization theory (FPE) of international trade states that the prices of elements (labor and capital) will be equalized across nations once output commodities are equalized as nations transition to free trade.
History section
Paul A. Samuelson proposed the idea of FPE in 1948.
View the SourceFactor price equalization (Wikipedia)
In Group: International Trade Theory, Lead sectionQuote, In Group: International Trade Theory, Lead section
Factor price equalization is an economic theory, by Paul A. Samuelson (1948)
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