Leontief paradox theory

Leontief paradox quora

However, Leontief found very few believers among economists. These products were imported because the U. But the factor-intensity reversal must be widespread or substantial to repudiate the H-O theory. But this should have been relatively insiginficant. There is little doubt that the United States is most well-endowed with human capital. Brown revealed that the consumption or demand pattern in the United States did not appear to be biased in favour of capital- intensive goods. Leontief should have seen whether or not goods imported into America were capital or labour intensive in the country of origin. There is complementarity between capital and natural resources in the field of production. By importing such products, the United States actually conserves her scarce natural resources. That accounted for high labour-intensity of her imports from the United States. His main empirical results are stated in Table. Until convincing or more conclusive evidence becomes available in support of Leontief paradox, the H-O theory must be deemed as valid. Trefler resurrects Leontief's theory and has proved that when quality indices of factors are incorporated, US exported capital and imported labor services in HOV Theorem. According to him, the pattern of demand in the United States is such that it is compelled to import all such commodities that have a relatively higher capital-intensity.

They concluded that H-O trade theory was valid in about fifty percent cases. A realistic difference in effectiveness between the representative workers in the U. It has provided a good deal of insight into the foreign trade position of the U.

Another study that provided support to the Leontief paradox was made by R. It means that the average American worker is three times as effective as he would be in the foreign country. This year was very close to the period of Second World War Empirical relevance The question is whether FIR is common in the real world.

Table 8.

reasons for leontief paradox

Related posts:. Leontief should have seen whether or not goods imported into America were capital or labour intensive in the country of origin. US manufacturing firms outsource fragmented processes to low wage countries.

Most economists might acknowledge the superior quality of U.

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He had emphasized only upon the physical capital such as machinery, equipment, buildings etc. These economists argue that the United States has an advantage in highly skilled labor more so than capital. If factor reversals exist, it is fully possible for a capital rich country to export its labour intensive goods. Factor Intensity Reversal Example If a commodity is produced by a labor-intensive process in the labor-rich country and also by the capital-intensive process in the capital-rich country, then factor intensities are reversed in the production of that commodity. The Leontief paradox was supported by the study made by M. In addition, the increase in labour efficiency or productivity to the stated extent implies that productivity of capital should also be three times more than that in the foreign country. Had he done so and compared, for instance, the factor intensities in American export industries with those of Japan or Western Europe, he might well have found that American exports were capital intensive compared to Japan or Western Europe exports. If the human capital component is added to the physical capital, the U. The Leontief conclusion that in the international division of labour, the U. A realistic difference in effectiveness between the representative workers in the U. It might be the case, for instance, that imports require more capital to labour than exports; it is still, however, possible that imports are intensive in the third factor, say land. The main objections against it are as follows: i Inherent Bias: The writers like B. Travis explains the Leontief paradox with the help of U.

Smith and Thomas Schelling

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Leontief Paradox financial definition of Leontief Paradox