Factor price convergence between small-north and large-south economies: evidence from Taiwan and China

Along with the boom of the North-South trade, factor price convergence (FPC) becomes a concern in developed economies. It is because the real wage level of a developed economy can be stagnant or declines when major economic partners of those developed economies are less developed and large economies. Being the largest economy and strong economic interaction with Taiwan, China, together with Taiwan, provides a great opportunity to verify FPC. Through panel unit root test and from a long-run dynamic view, we surprisingly find that FPC does not hold from the nationwide viewpoint, but it does hold between the east-costal region of China and Taiwan.