Introduction to the Leontief Paradox 2. Reconciliation 4. Introduction to the Leontief Paradox: The Heckscher-Ohlin theorem gave a generalisation that the capital-abundant counties tend to export capital-intensive goods while labour- abundant countries tend to export the labour- intensive goods. Leontief put this generalisation to empirical test in and found the results that were contrary — to the generalisation provided by the H-O theory. Leontief made use of input-output tables related to the U. He took only two factors of production— labour and capital.
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Home Essays The Leontief Paradox and The Leontief Paradox and the New Trade Theory Topics: International trade , Economics , International economics Pages: 2 words Published: October 21, The Leontief Paradox and the New Trade Theory The Leontief Paradox seemingly undermined the Factor Proportions theory of international trade and stimulated additional research that has improved our understanding of how trade takes place in theory and in practice.
Two types of New Trade theories have emerged. Countries like the United States and Japan are abundant in Human Capital highly educated and trained workers and export Human Capital intensive products such as computers and aerospace equipment. The H-O theory still holds for these products once we recognize that different countries have different relative endowments of Human Capital. The H-O theory does explain the product cycle. Leontief was confused when he saw the U.
Today, however, the production of goods is increasing fragmented, with products shipped back and forth across national borders see the Boeing handout. Now, for example, capital intensive automobile engine blocks parts may be manufactured in capital abundant Canada, then shipped to labor abundant Mexico for sub-assembly, then shipped to Leontief received a Nobel Prize in Economics and is famous for his input-output analysis. The US is widely recognised to be a capital-abundant country.
Therefore, in terms of H-O theory, it is expected that the US would export capital-intensive goods and import labour-intensive ones.
In , Leontief conducted an empirical test of the H-O theory by applying his input- output technique on American trade data of Leontief found that import substitutes of the US were more capital-intensive than its exports.
This finding contradicted what H-O theory had predicted and came to be known as the Leontief Paradox. Resolving the Paradox: The Leontief Paradox evoked a widespread response from academicians.
Leontief Paradox Theory
Measurements[ edit ] In Robert Baldwin showed that U. However, he acknowledged that the U. Many economists have dismissed the H-O theory in favor of a more Ricardian model where technological differences determine comparative advantage. These economists argue that the United States has an advantage in highly skilled labor more so than capital.
The Leontief Paradox and the New Trade Theory
This econometric find was the result of Wassily W. In , Leontief found that the United States —the most capital-abundant country in the world—exported commodities that were more labor -intensive than capital-intensive, contrary to H-O theory. Leontief inferred from this result that the U. Measurements In Robert Baldwin showed that U. However, he acknowledged that the U.
It was considered that a country will tend to export those commodities which use its abundant factors of production intensively and import those which use its scarce factor intensively. By common consent the United States is the only country that is most abundantly endowed with capital. Therefore, one would expected the United States to export capital intensive goods and import labour intensive goods. Me computed for various industries the direct and indirect capital and labour required to produce a given dollar value of output. He then calculated the effects on capital and labour use of a given reduction in both U. The conclusion was that the given value of U. Expressed inversely, U.