Factor price equalization is an economic theory, by Paul A. Samuelson (1948), which states that the prices of identical factors of production, such as the wage rate or the rent of capital, will be equalized across countries as a result of international trade in commodities.
Whichever factor receives the lowest price before two countries integrate economically and effectively become one market will therefore tend to become more expensive relative to other factors in the economy, while those with the highest price will tend to become cheaper.
[2] The "Lerner Diagram" remains a key analytical tool in teaching international trade theory.
Joseph Stiglitz applied factor price equalization to a dynamic economy to study the long term supply responses of capital from the classical perspective.
He also demonstrated that in the long run tariff or export subsidy may increase the consumption per capita in those countries, providing a simple explanation for the results.