The leontief paradox led to rejection or revision of the heckscherohlin theorem. L eontief s test of factor proportions was based on the assumption that, within each u. So far, however, no firm empirical conclusions have repudiated leontiefs basic find ings. The competitive theory of international trade is well known for its abundance of paradoxes. The observation by wassily leontief 19061999 that in spite of being the worlds most capitalrich country, the us appeared on average to have exports that were slightly more labourintensive than its imports.
Leontief paradox leontief paradox definition leontief pa. Based on our belief that the us is capital abundant, this phenomenon seems contradict the hos prediction of the pattern of trade. Keywords leontief paradox, ho model, inputoutput table. It shows an anomaly that occurs when a nation has high domestic demand for a product. Pdf using 1947 us inputoutput tables and data on exports and imports, leontief 1953 found, to the surprise of the profession, that the capital per. Today, in somewhat modified form, leontiefs procedure con tinues to be a standard method for the analysis of the factor content of trade. The leontief paradox to heckscherohlin theory economics. Perhaps the most widely known is the leontief paradox, associated with the rather startling results presented by leontief 1953 that the trade pattern of the united states suggested that its export sectors were more laborintensive than factor proportions found in its importcompeting sectors. Other articles where leontief paradox is discussed. The leontief paradox and technologybased trade theories. The us is widely recognised to be a capitalabundant country.
Therefore, in terms of ho theory, it is expected that the us would export capitalintensive goods and import labourintensive ones. Pdf the leontief paradox, reconsidered researchgate. The comparison by leontief of kxlx with kmlm is shown to be theoretically inappropriate. The heckscherohlin theorem, the leontief paradox, and. Evolution in the thought and analysis of wassily leontief pdf. The purpose of this paper is to explain why, in fact, the paradox occurred, by primarily focusing on what are known as the natural resource and human capital explanations before going on to discuss the critical importance and modern day relevance of the. It explains the relationship between domestic demand and comparative advantage. Exports were less capitalintensive than importcompeting goods leontief paradox contradicted the predictions of the factorendowment theory. Leontiefs attempt to test the heckscherohlin theory ho theory empirically. Leontief model wassily leontief won the nobel prize in economics in 1973.
In 1953, leontief found that the united statesthe most capitalabundant country in the worldexported. Although of fluctuating popularity, inputoutput analysis has been a mainstay of economics and economic policy and planning since leontief introduced it in the 1940s. Leontief paradox and the role of factor intensity measurement. A nobel prizewinning american economist and professor. Leontiefs paradox in economics is that a country with a higher capital per worker has a lower capitallabor ratio in exports than in imports this econometric find was the result of wassily w. The leontief model is a model for the economics of a whole country or region. Leontief paradox exists or not relying on the sectors factor requirements on which an investigation of the ho model is based. On the validity of the leontief paradox test kleiman. When leontief made his study, most competitive imports considered of crude oil, paper pulp, primary copper and lead, and metallic ores. Labor by occupation in isco1968 countries 01 3 4 5 6 789 philippines 0. Wassily leontief was born in 1906 in russia, where he was also raised.
View enhanced pdf access article on wiley online library html view download pdf for offline viewing. Leontief paradox and the role of factor intensity measurement iioa. Pdf in this paper we examine the impact of membership in preferential trade agreements ptas on trade between pta members. Three of his students, paul samuelson, robert solow and vernon smith also received nobel prizes. The heckscherohlin theory states that each country exports the commodity which intensively uses its abundant factor. Petersburg, russiadied february 5, 1999, new york, new york, u. It disproved ricardos theory of comparative advantage. The heckscherohlin theorem gave a generalisation that the capitalabundant counties tend to export capitalintensive goods while labour abundant countries tend to. An empirical analysis of the leontief paradox in us. Tell a friend about us, add a link to this page, or. Which of the following statements is true of the leontief paradox. In the model there are n industries producing n di erent products such that the input equals the output or, in other words, consumption equals production.
Ohlin theorem is valid, then, within each industry, commodities exported by the u. Although the heckscherohlin theorem has been at the centre of standard trade theory since the middle of the 20 th century, its empirical relevance has been challenged for almost as long. Leontief paradox explored a new trade pattern when countries. Using 1947 us inputoutput tables and data on exports and imports, leontief found, to the surprise of the profession, that the capital per worker of us exports was less than the capital per worker of us import substitutes. The other reason for the leontief paradox, which has been given by jones and later johnson 8, is the case of factor intensi ty reversals. Using 1947 us inputoutput tables and data on exports and imports, leontief 1953 found, to the surprise of the profession, that the capital per. Leontief using 1951 data and baldwin using 1962 data found the paradox, stern and maskus found no evidence. Trade theory heckscher ohlin theory plus the leonteif paradox. One of the most fascinating theorems in international trade theory is named after two swedish economists, heckscher. The heckscherohlin theorem, the leontief paradox, and patterns of economic growth by nobuo minabe the core of the heckscherohlin theorem of the nature of trade patterns 6 15 is the explanation of the relation between factor endowments and the doctrine of comparative costs or commodity price ratios. In this video i give a brief explanation of the hecksherohlin theory and the leontief paradox. Pdf using 1947 us inputoutput tables and data on exports and imports, leontief 1953 found, to the surprise of the profession, that the. Indian exports were found to be more laborintensive than indian imports, thus supporting the ho theorem.
Economists had previously held that a countrys exports reflect the commodity most abundant in that countryi. Austin abstract this article explains the leontief paradox within the heckscherohlin trade model, by dropping the assumption that perfect competition allows comparative price advantage to be imputed from comparative cost advantage. Wassily leontief received a nobel prize in 1973 for his contribution to the inputoutput analysis. Travis explains the leontief paradox with the help of u. Leontiefs finding was so startling that it has been called a paradox, even though the result amounted to at most a single contradiction of the theory and even though no alternative model could be said to conform better with the facts. Paradox has been found in tests of other countries japan, canada, india. Trade, factor content of trade, trade types, leontief paradox. What is leontief paradox trade theory worlds largest. Heckscherohlin trade, leontief trade, and factor conversion. This was thought to be paradoxical because the heckscherohlin model of international trade led people to expect that us exports would be capitalintensive and its imports would be.
Loentief paradox and evidence related to other countries 3. Similarly, labor and capital are not the same across countries. The heckscherohlin theory of trade predicts patterns of trade based on. The response to this empirical paradox was the formulation of theory that might explain why a capital abundant country had labourintensive exports. Leontiefs paradox in economics is that a country with a higher capital per worker has a lower. There exist two possible methods for the investigation, the inductive infer ence and deductive inference. The leontief paradox, reconsidered article pdf available in journal of political economy 883. Suggests that empirical, theoretical, and policy attention should be focused on trade in factor services the factors embedded in imports and exports rather than.
Keywordsleontief paradox, ho model, inputoutput table. The leontief paradox, reconsidered journal of political. Leontiefs paradox paul brecx in two articles i which initiated a long controversy, professor leontief computed and compared the quantities of capital and labor directly and indirectly required to produce in the united states two composite goods, each of which is worth one million dollars. Leontief ignored land abundance in the united states, and did not distinguish. Leontief paradoxes financial definition of leontief paradoxes. Leontief received a nobel prize in economics 1973 and is famous for his inputoutput analysis. The leontief paradox critically examined1 hoffmeyer. Some sectors confirm the existence of leontief paradox and others do not within the same country.
Wassily leontief, 19061999 a general equilibrium method of analysis, inputoutput models examine economic activity by studying the relationships between sectors. August 5, 1905 february 5, 1999, was a russianamerican economist known for his research on inputoutput analysis and how changes in one economic sector may affect other sectors leontief won the nobel committees nobel memorial prize in economic sciences in 1973, and four of his doctoral. Leontief paradox financial definition of leontief paradox. In perhaps the most famous empirical study in international economics, wassily leontief 1953 aggregated us industries into 50 sectors, of which 38 were directly involved in international trade.
The leontief paradox stated that usas exports were capitalintensive and imports were labourintensive usas exports and imports both were labourintensive. The leontief paradox, reconsidered journal of political economy. Wassily leontief 1954 data 1947 suggested that capitallabor ratio for u. Closed form solutions maximizing leontief utility function yunyeong kim doi. Marshall 2008, factor content of trade when countries have different technology, fisher, e. Leontief himself tried to puzzle out his own paradox by arguing that american labor is three times more productive than world labor as a result of a fervid entrepreneurship, an outstanding economic framework and a favorable environment with plenty of incentives leontief, 1953.
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