Factor Price Equalized in Japanese Regions?

This paper tests the factor price equalization in Japanese regions. The factor price equality is strongly rejected at 1990 as well as at 2000, even if unobserved cross-regional differences in factor quality and in productivity are considered. The regional wages appear negatively related with relative abundance of labor in each region, suggesting disintegrated factor markets within a country. The cross-regional gap in absolute wage levels remains large, though the significant convergence of regional wages is observed during the 1990s. While stronger increasing returns tend to raise wages, the import penetration significantly reduces wages