Do Wages and International Trade Follow an Equilibrium Path?

Do Wages and International Trade Follow an Equilibrium Path?

This paper presents an empirical analysis of the factor price equalization theorem (FPE) for 16 OECD countries. The paper demonstrates that the dispersion of wages in the OECD countries follows a non-stationary process. Nonetheless, the wages tend to converge as trade expands. The results also indicate that wage dispersion in the short-run responds in an asymmetric manner to trade expansion depending upon the source of this expansion. In the long-run, estimates show that increases in both exports and imports lead to wage convergence among the OECD countries. This result supports the FPE theorem. [JEL.: F00,F1, F15,J30, C00, C22]