Table of Contents

Handbook of Research Methods and Applications in Economic Geography

Handbook of Research Methods and Applications in Economic Geography

Handbooks of Research Methods and Applications series

Edited by Charlie Karlsson, Martin Andersson and Therese Norman

The main purpose of this Handbook is to provide overviews and assessments of the state-of-the-art regarding research methods, approaches and applications central to economic geography. The chapters are written by distinguished researchers from a variety of scholarly traditions and with a background in different academic disciplines including economics, economic, human and cultural geography, and economic history. The resulting handbook covers a broad spectrum of methodologies and approaches applicable in analyses pertaining to the geography of economic activities and economic outcomes.

Chapter 3: Factor prices and geographical economics

Steven Brakman and Charles van Marrewijk

Subjects: economics and finance, regional economics, geography, economic geography, research methods in geography, research methods, research methods in economics, research methods in geography, urban and regional studies, regional economics, research methods in urban and regional studies


A key result in neoclassical trade theory, or the Heckscher–Ohlin model, is the so-called factor price equalization theorem (FPE; see Leamer, 2012 for a survey). It states that countries engaged in free trade that produce the same set of commodities, using similar techniques, have identical factor prices. This is a surprising result if one considers that in this stylized neoclassical world, countries that differ with respect to factor supplies still have the same factor prices. This result implies that, for example, (il)legal immigrants do not affect local wages. The differences in factor supplies are absorbed by differences in the commodity bundle that a country produces. In equilibrium, a labor-abundant country produces more of the labor-intensive commodity, and the capital-abundant country more of the capital-intensive commodity. So an inflow of migrants does not lower wages because this inflow increases production of the labor-intensive commodity and thereby raises demand for labor. Consumers are not affected either because international trade corrects for the differences in local supply and demand (the excess supply of the labor-intensive commodity is traded in order to restore equilibrium). In a closed economy this outcome is not possible because an increase in labor supply and the resulting increase of the production of the labor-intensive commodity would lower its price and also wages. If this seems too good to be true, this opinion is correct.

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