18
enter the German market. It can only take place as long as Danish exports are not more
expensive than domestic production:
# w P Xdg
ggj
15
Combining we get:
0 # (wg&wd) Pd Xjg 16 Factor remuneration inequality
Hence d‘s exports to g contain more factor content of those factors of production that are
less expensive in d than in gand less of those factors that are more expensive. (Helpman
and Krugman 1985 p. 175). The factor remuneration inequality (16) holds true even in a world
with imperfect competition, intra-industry trade etc. This has important implication for
interpretation of wage differences between countries.
Education and Danish foreign trade 1980-1992
From 1980 to 1992 the official Danish trade balance improved from a deficit of 3.7 % of GDP
to a surplus of 3.4 % of GDP (OECD, se also figure 2). Some, but decidedly not all of this
improvement can be traced back to import and export of goods and services and thus to the
labour market and other domestic factors of production. It appears from table 3 that
decomposed the current balance in 1980 and 1992 into factor income content in import and
exports and other items.
The decomposition of current account has implication for calculation and interpretation of the
HOV-model. Domestic factor income earned by exports can be used to purchases of imports,
that must remunerate all factors of production abroad. Therefore the interesting comparison
goes between domestic factors in export, and global factors in imports for domestic
absorptions. The value of exports in addition includes imports used for production of export
goods: Some imports are embedded in exports, but this import is irrelevant for comparing
domestic factors of production with global factors of production, and are therefor excluded
from both sides of the equations.