Does trade liberalization converge factor prices? Evidence from the antebellum transportation revolution

Abstract

A widespread current policy concern is whether the international integration of product markets forces together wages across countries. To help gain an insight into this issue, this paper analyses the case of the US antebellum transportation revolution. Between 1820 and 1860 an extensive intranational network of canals and railroads emerged that dramatically reduced transportation costs within the country. Motivated by the factor-price-convergence (FPC) theorem from Heckscher–Ohlin trade theory, this paper explores the impact of these cost reductions on regional product prices and wages. The main empirical finding is that prices converged quite markedly across regions, but nominal wages converged very little. The paper then discusses three possible explanations of no wage convergence.

Keywords:

• Trade Liberalization
• Factor Prices