Land, Labor and the Wage-Rental Ratio: Factor Price Convergence in the Late Nineteenth Century

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This paper augments the new historical literature on factor price convergence. The focus is on the late nineteenth century, when economic convergence among the current OECD countries was dramatic; and the focus is on the convergence between Old World and New, by far the biggest participants in the global convergence during the period; and the focus is on land and labor, the two most important factors of production in the nineteenth century. Wage-rental ratios boomed in the Old World and collapsed in the New, moving the resource-rich and labor scarce New World closer to the resource-scarce and labor-abundant Old World. The paper uses both computable general equilibrium models and econometrics to identify the forces causing the convergence. These include: commodity price convergence and the Heckscher-Ohlin Theorem of factor price equalization; migration, capital-deepening and frontier disappearance, factors stressed by Malthus, Ricardo, Wicksell and Viner; and factor-saving biases associated with induced-innovational theory, an endogenous response to relative factor scarcities.

Published: "Factor Price Convergence in the Late 19th Century," International Economic Review,, vol. 37., no. 3, pp, 499-530, August 1996.

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