Why are prices of factors of production NOT equalized?

Question

What will be an ideal response?

Answer 1

Again this statement may or may not be argued to be true. On the one hand, the large volume and growth in world trade between the United States and other OECD countries during the 50 years since World War II has clearly been related to a near universal (average) convergence in real wage levels in these countries, whereas the most obvious cases in which such a convergence did not take place (North-South countries) also happened to be cases in which trade was relatively small and "missing."

There are many theoretical reasons why factor price equalization may not occur. If the relative country relative abundances are very different, then the theory itself does not predict that the wage equalization will occur. The same is true of factor intensity reversals exist within relevant relative wage ranges. Dynamic migration models such as Harris-Todaro are another class of theory that may suggest that even if the static equilibrium solution does include the factor-price equalization, the dynamic path of the model may never reach this solution, so that when observed within any finite time frame, it a lack of equalization would exist..