Factor-Price Equalization Under Joint and Nonjoint Production

We investigate how joint production affect the likehood of factor price equalization (FPE) through trade. Fowolling up on recent contributions by Samuelson (1992) and Jones (1992), we propose to take the relative size of the FPE region of endowment distributions to measure this likelihood, and we show that ist may increase even if joint production leads to a decrease of the number of basic production processes, and it may decrease even if the number of basic production processes operated in equilibrium is the same as under nonjoint producion. A 2x2x2 example is analyzed in more detail. Moreover, we show taht the argument of Jones (1992) can be reinterpreted in a more applied direction by considering the effects of switching from a regime where only intermediate products are traded to a regime where all products are traded. The paper shows that the likelihood of FPE may decrease by integrating product markets in this way. Still more surprising is the fact that integration may even destroy FPE.