17
E m L E m%1
En
E C1 E C2
E Cm L C E C(m%1)
ECn
12 Vanek’s chain rule
Em
E Cm
&—>0>
LC
Em%1 L
EC(m%1) L C
(11) and (12) are called Vanek’s chain rule. As it rest on Heckscher-Ohlin (7) they together
constitutes the Heckscher-Ohlin-Vanek or HOV model. Even though there are no information
about all factors of production in Denmark the models makes it possible to analyse the
relationship between different types of education and total labour input.
No factor price equalisation
In cases with no factor price equalisation trade patterns will still reveal important information
about production factors and factor remuneration in Denmark. This is shown by Leamer 1984.
Let Denmark’s export of j different goods to a country (say Germany) be Xjdg .The factor
content of this export depends on production technology in Denmark Pd . The factor content
of Denmark’s export to Germany thus is: PdXjdg . Let the international determinated price of
tradeable goods be γj. and factor remuneration in Denmark wdand we have the value of
Denmark’s export to Germany:
χ.Xdg ' wPXdg 13
Jj J d d J
The same goods could also be produced in Germany with German technology and German
factor remuneration. In the extreme case factor prices are equalized and equilibrium on the
productions function will be the same. However if factor prices are not equalized then
production in Germany would cost:
w P X dg # wP X dg
ggJ gdJ
14
since the Germans will use production technologyPg if and only if it is not more expensive
than the Danish technologyPd. A similar argument goes for the ability of Danish export to