LEONTIEF PARADOX THEORY OF INTERNATIONAL TRADE PDF

In , Leontief conducted an empirical test of the H-O theory by applying his In other words, the country resorts to foreign trade in order to economise its. This result has come to be known as the Leontief Paradox. The HO theory generally explains the trade patterns during the post war periods, say – Leontief Paradox: Wassily Leontief: also is known for the “Leontief Paradox. In international trade: Factor endowments: the Heckscher-Ohlin theory.

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This is because inUS labour and capital were both more productive than was the case in other countries and, therefore, US was still to be rated as a highly capital-abundant country.

We have seen how the possibility of trade causes a change in commodity prices, giving rise to a change in factor prices, to a reallocation of factors of production, and a change in the production structure. He showed that Indian exports, in general, were more labour- intensive, while imports were capital-intensive. But he argued that US exports were skilled labor- intensive than US imports.

He pointed out that the United States had a trade surplus yrade and there was little evidence that exports were labour- intensive. In other words, this country resorts to foreign trade in order to economize its capital and dispose of its surplus labour rather than vice-versa.

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However, this is not linked to theoru factor endowment of the country. Harvard University Press, The evidence is, however, not conclusive one way or the other. Tatemoto and Ichimura studied Japan’s trade pattern and discovered another paradox.

It may be important when comparing trade patterns between developing and developed economies e. In a world of many factors K, L, N, Romney Robinson explained Leontief paradox without repudiating the Heckscher-Ohlin theory on the basis of relative patterns of demand existing in the United States and other countries.

The study made by Stern and Maskus in for the year confirmed the H- O theory even when natural resource industries were excluded.

Leontief Paradox Theory (An Overview)

In his second study, Leontief aggregated industries into industries. Buchanan has criticized Leontief for having neglected the role of natural resources in the determination of trade pattern. Leontief had pararox greater capital-intensity in the U. He rather tried to explain the reasons due to which he arrived at a result different from that provided by the H-O theory.

S exports was far lower than expected, given the U. Leontief made use of input-output tables related to the U.

What is Leontief Paradox Trade Theory

The conclusion was that the given value of U. Thus, LP can be explained if the US had a strong consumption bias toward the capital-intensive goods. He confirmed Leontief paradox and found that the U. Accordingly, it can be said that the Leontief Paradox is only pointing out the non-validity of-H-O— assumptions rather than the results which logically follow from that theorem.

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The Leontief Paradox to Heckscher-Ohlin Theory | Economics

That is, the US may export 1 and 3 and import 2. Although the United States is a capital-abundant country, yet its specialisation is found in the labour-intensive commodities. Capital and natural resources are lekntief in many fields of production.

They are first and foremost means of studying the general equilibrium characteristics of open economies. India’s exports were labor-intensive. They generally operate in the export sector and tfade goods through highly capital-intensive techniques.

US have very big farms which are manned by extremely limited number of workers but huge volumes of machinery. Introduction to the Leontief Paradox 2. East Germany was relatively more capital-abundant than the latter.

Leontief Paradox | political economics |

Suppose the US is poor in natural resources. The Heckscher-Ohlin theory states that each country exports the commodity which intensively uses its abundant factor. Similarly, New Trade Theory argues that comparative advantages can develop separately from factor endowment variation e. Infernational agricultural exports from Canada, Australia and most of the less developed countries are land-intensive essentially because of an abundance of land.

This page was last edited on 9 Novemberat