A Note on Empirical Implementation of the Lens Condition

Deardorff [Journal of International Economics 36 (1994) 167-175] offers an intuitively appealing test for factor price equality (FPE). He demonstrates that FPE is impossible if the set (i.e., lens) of points defined by regional factor abundance vectors does not lie within the set of points defined by goods’ input intensities. This note demonstrates that empirical implementation of the lens condition is problematic if the “true” number of either goods or regions is unknown. We show that satisfaction of the lens condition is more likely when goods are relatively disaggregate compared to regions. ∗ Bernard and Schott gratefully acknowledge research support from the National Science Foundation (SES-0241474). We would like to thank Tom Halverson and Juan Camilo Gomez for helpful discussions. The views expressed and any errors are the authors’ responsibility. ♣ 100 Tuck Hall, Hanover, NH 03755; tel : (603) 646-0302, fax : (603) 646-1308, email :[email protected] ♥ 1600 Grand Ave. St. Paul, MN 55105; tel: (651) 696-6739, fax: (651) 696-6746, email: [email protected] ♠ 135 Prospect Street, New Haven, CT 06520; tel : (203) 436-4260, fax : (203) 432-6974, email : [email protected] Empirical Implementation of the Lens Condition