Leontief paradox

In such a situation, the H-O theory cannot be sustained and Leontief paradox may become applicable in one of the two countries. At the same time, she exports the farm products that have low capital-labour ratio. The only two factors explicitly taken into account are labour and capital.

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Learn how imports and exports exert a profound influence on the consumer and the economy. Moroney concluded that FIR has much less empirical importance, albeit theoretically interesting.

Wassily Leontief

Leontief himself tried to bring about reconciliation between his paradox and H-O theory through the argument that the United States, though a labour-scarce country in strictly quantitative or conventional terms, is actually a labour-abundant country.

They concluded that H-O leontlef theory was valid in about fifty percent cases. The H-O theory found support from a study made by W.

It is more likely that human capital had existed in both industries. He failed to take into account the differences in capital durabilities in different industries. However, it is the extra human capital embodied in labor in the export sector that counts here.

Discover how the now-defunct Soviet economic system affected domestic consumer goods markets.

Leontief Paradox Theory (An Overview)

Leontief died in New York in Leontief did not include the value of human capital in his calculations. For instance, the Linder hypothesis states that demand plays a more important role than comparative advantage as a determinant of trade—with the hypothesis that countries which share similar demands will be more likely to trade.

Social sciences — Economics.

He lenotief to the fact that U. Capital and Labor Requirements to produce one million dollars' worth of the typical exportable and importable bundles in According to these writers, this pattern of trade is not consistent with the H-O theory.

He showed that Indian exports, in general, were more labour- intensive, parsdox imports were capital-intensive. While some of the empirical studies put a question mark on the validity of H-O theory, the others have gone in favour of paradoxx.

This was probably a bad theory. By common consent the United States is the only country that is most abundantly endowed with capital. The transition of the US economy from a wartime to a peacetime economy was not complete until the s.

Leontief arrived at a conclusion which is in contradiction to the H-O theory also because he over-looked leontjef effect of research and development expenditure on the trade pattern. Human capital has not been taken into account in evaluating LP. The high labour-intensity in the United States exports and capital-intensity in case of import-replacement products can be attributed to the demand pressures in the United States and her trading partners.

Thus, one can say that the above is a more general definition of factor abundance. The first serious attempt to test the theory was made by Professor Wassily W. Introduction to the Leontief Paradox 2. Japan-LDC trade was padadox consistent. Several attempts were made by them to either defend the paradox or discover its logical flaws and prove it wrong.

The Leontief Paradox to Heckscher-Ohlin Theory | Economics

In view of this objection, Leontief reworked leotnief his data after enlarging the group of industries into sectors. At the same time, elontief exports the farm products that have low capital-labour ratio. Then this trade pattern would be consistent with the HO theory.

He confirmed Leontief paradox and found that the U. For instance, both the United States and Germany are developed countries with a significant demand for cars, so both have large automotive industries.

In brief, capital-abundant countries export labour- intensive goods and labour-abundant countries export capital-intensive goods.

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