Leontief paradox
Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
The Leontief paradox is the finding that the USA, the world's most capital-rich country, exported goods that were relatively labour-intensive. This contradicted the Heckscher-Ohlin theory, which predicts that a capital-rich country exports capital-intensive goods. Wassily Leontief published the result in 1953, using US input-output data for 1947. It showed that factor endowments alone cannot fully explain trade.
Example
Heckscher-Ohlin predicted that US exports would need more capital per worker than US imports. Leontief found the reverse. Later economists explained this in three ways: US workers were highly skilled, natural resources mattered, and technology differed between countries.
Don't confuse with
- Heckscher-Ohlin theory: this is the theory being tested. The Leontief paradox is the evidence that challenged it.
Related concepts
- Absolute advantage
- Comparative advantage
- Gains from trade
- Autarky
- Heckscher-Ohlin theory
- Stolper-Samuelson theorem
- Intra-industry trade
- New trade theory
- Gravity model of trade
- Entrepot trade