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The Leontief Paradox
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The Leontief Paradox In 1953 Wassily Leontief published the results of the most famous empirical investigations in economics, an attempt to test the consistency of the H-O Model with the U.S. trade patterns. Leontief’s objectives were: • to prove that the H-O Model was correct; and • to show that the U.S. exports were capital intensive
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The Leontief Paradox. In 1953 Wassily Leontief published the results of the most famous empirical investigations in economics, an attempt to test the consistency of the H-O Model with the U.S. trade patterns. Leontief’s objectives were: to prove that the H-O Model was correct; and - PowerPoint PPT Presentation
Transcript of The Leontief Paradox
The Leontief Paradox
In 1953 Wassily Leontief published the results of the most famous empirical investigations in economics, an attempt to test the consistency of the H-O Model with the U.S. trade patterns.
Leontief’s objectives were:
• to prove that the H-O Model was correct; and• to show that the U.S. exports were capital intensive
The Leontief Paradox
Leontief developed a 1947 input-output table for the U.S. to determine the capital-labor ratios used in the production of U.S. exports and imports. Leontief found that the U.S. exports used a capital-labor ratio of $13,991 per man year, whereas import substitutes used a ratio of $18,184 per man year.
The Leontief Paradox
The key ratio of [( KX / LX ) / ( KM / LM )]
(13,991 / 1) / (18,184 / 1) = 0.77
was calculated. Given the presumption that the U.S. was relatively capital abundant, that ratio was just the reverse of what the H-O Model predicted. Thus, it is called the Leontief Paradox.
