By Paul Rosenberg
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The question now becomes empirical rather than theoretical: in reality, are the distortions discussed earlier substantial enough and widespread enough to dominate the equilibrating forces? And if so, does it matter? There has not been a lot of direct testing, on a global scale, of factor price equalization. It seems that up to the end of the 1970s, inequality between countries increased substantially, while within countries it decreased. However, from the 1980s onwards, there are indications of a change towards 16 Göran Runeson more inequality within countries but less inequality between countries.
And Swedenborg, B. (1996) The high cost of eating: Causes of international differences in food prices. Review of Income and Wealth 42 (2) (June), 181–294. Lipsey, R. and Swedenborg, B. (2007) Explaining Product Price Differences Across Countries. NBER Working Paper Series, Vol. w13239. com/abstract=999034: Accessed 20 Feb 2012. Moffat, M. about. htm: Accessed 24 Feb 2012. com/international-comparison/: Accessed 24 July 2013. Persson, K. (2008) Law of one price. In: Whaples, R. net/encyclopedia/the-law-of-one-price/: Accessed 24 Feb 2012.
A third approach is to use intermediate or elemental prices of inputs. The prices can be based on contractor estimates or tender prices for parts of construction work. While suffering most of the problems of the previous approaches, it takes, to some extent, the guesswork out of determining the quantity of labour required for different types of work, although the calculations would still be ex ante rather than ex post. That is because the output prices typically used are not actual prices but estimates by consultants or contractors.