Fragmentation across Cones

Abstract

Abstract The subject is still fragmentation, as it was in an earlier paper motivated by the previous conference in this series. This time I want to explore further how fragmentation may matter for the prices of factors. This question is most interesting in the context of a Heckscher-Ohlin trade model in which factor prices are not equalized by trade, especially if this is due to the countries having sufficiently different factor endowments to make factor price equalization (FPE) impossible.2 In such a world, with a large number of both goods and countries (but only two factors, to keep things manageable), goods and countries fall into two or more cones of specialization.3 Within these cones, countries share identical factor prices, but between cones they do not. Fragmentation either will not occur, or is not particularly interesting, within these cones. Therefore I will look primarily at fragmentation across cones.

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