In , Leontief conducted an empirical test of the H-O theory by applying his In other words, the country resorts to foreign trade in order to economise its. This result has come to be known as the Leontief Paradox. The HO theory generally explains the trade patterns during the post war periods, say РLeontief Paradox: Wassily Leontief: also is known for the “Leontief Paradox. In international trade: Factor endowments: the Heckscher-Ohlin theory.

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Vernon found that the U. In this sense, HOV Theorem does provide a guide to trade policy; a trade policy should not encourage exports of scarce resources and imports of abundant resources. William Travis argued that tariff may have been responsible for the LP. Afterwards, there were no new empirical studies on US trade.

Swirling pointed out that the Leontief paradox involved a bias because of inclusion of certain industries in case of which capital-labour ratio was low. Empirical studies have shown that the natural resource content in typical US imports is greater than that in US exports. Houthakker do not accept this argument.

Apart from that, the model is depending on vulnerable and unrealistic assumptions.

Leontief Paradox | political economics |

It is now sufficiently clear that the empirical studies concerning the Leontief paradox tneory H-O theory, have provided conflicting conclusions. US was known for imposing unduly heavy customs duties on its imports from labour-abundant developing countries such as fabrics, handicrafts, carpets, etc.

Roughly half the countries tested show trade patterns consistent with the HO theory.

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The efficient utilization of capital requires large amounts of natural resources also. The United States imports, in fact, are the natural resource intensive products such as minerals and forest products. To perform the test, Leontief used the input-output table of the US economy He received his Nobel prize for his contribution to input-output analysis later.

By using this site, you agree to the Terms of Use and Privacy Policy. By common consent the United States is the only country that is most abundantly endowed with capital.

Leontief Paradox Theory (An Overview)

Had trade been balanced inwould the US have exported capital-intensive goods and imported labor-intensive goods? In this process, they gave different explanations to the new discovery of Leontief. It assumes that a commodity cloth is labour-intensive both in the U.

The higher productivity of the American labour was attributed by him to better organization and entrepreneurship in the United States than in other countries. Wahl conducted a study related to the trade pattern of Canada in Although, Brown and Travis contradicted this by showing a demand bias in favour of labour-intensive goods Perdikis and Kerr Baldwin, Determinants of the Commodity Structure of U.

No reliable estimates of capital stock.

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Although the United States is a capital-abundant country, yet its specialisation is found in the labour-intensive commodities. Given the capital abundance of the united states in the period after second world war, one would expect that U.

Leontief arrived at a conclusion which is in contradiction to the H-O theory also because he over-looked the effect of research and development expenditure on the trade pattern. In brief, capital-abundant countries export labour- intensive goods and labour-abundant countries export capital-intensive goods. Retrieved from ” https: Similarly, New Trade Theory argues that comparative advantages can develop separately from factor endowment variation e.

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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. Assume further that when trade is balanced, the US exports good 1 interrnational imports 2 and 3.

Leontief reviewed Minhas’s book and pointed out that only 17 out of possible reversals did occur for the relevant range of factor prices.

Most economists might acknowledge the superior quality of U. Using this definition, the exports of the United States are o human capital-intensive, and not particularly intensive in unskilled labor.

In summary, it can be argued that most of the US imports were capital intensive because tariffs and other trade policies restricted labor-intensive imports in order to perceive American jobs. The economists undertook intense research for re-examining both the H-O theory and Leontief paradox.

Minhas investigated 24 industries for which comparable data were available for 19 countries. World trade patterns have become a lot more complex: The study attempted by W. JonesUniversity of Rochester argued that demand bias could be an explanation.

S foreign trade and its factor content.