Leontief paradox

Leontief's paradox in economics is that a country with a higher capital per worker has a lower capital/labor ratio in exports than in imports.

This econometric find was the resullt of Wassily W. Leontief's attempt to test the Heckscher–Ohlin theory ("H–O theory") empirically. In 1953, Leontief found that the United States—the most capital-abundant country in the world—exported commodities that were more labor-intensive than capital-intensive, contrary to H-O theory.[1] Leontief inferred from this result that the U.S. should adapt its competitive policy to match its economic realities.

Measurements

  • In 1971 Robert Baldwin showed that U.S. imports were 27% more capital-intensive than U.S. exports in the 1962 trade data, using a measure similar to Leontief's.[2][3]
  • In 1980 Edward Leamer questioned Leontief's original methodology for comparing factor contents of an equal dollar value of imports and exports (i.e. on real exchange rate grounds). However, he acknowledged that the U.S. paradox still appears in Baldwin's data for 1962 when using a corrected method comparing factor contents of net exports and domestic consumption.[4][5]
  • A 1999 survey of the econometric literature by Elhanan Helpman concluded that the paradox persists, but some studies in non-US trade were instead consistent with the H–O theory.
  • In 2005 Kwok & Yu used an updated methodology to argue for a lower or zero paradox in U.S. trade statistics, though the paradox is still derived in other developed nations.[6]