Paradox continues

Paradox continues

Leontief’s Paradox in economics states that a country import commodities that uses scarce resources and exports the one that uses abundant factors of production intensively, which means,  a country like US ( the most capital abundant country) will export capital intensive goods and will import labour intensive commodities.

 

This theory was developed by Wassily W. Leontief . He developed this theory in order to test Heckscher- Ohlin ( H- O theory) empirically. H-O Theory studied about international trade and concluded that countries will export commodities that they can easily produce. However, there was no technique developed to test this. Leontief won Nobel prize for his contribution in Input- Output analysis in 1973.

 

Leontief carried his first test in 1954,  he used input output tables of different industries. The results that he came up with were totally contradictory. He concluded that US was exporting more of labour capital intensive commodities and importing capital intensive goods. At first, there was no dispute about H-O proposition,  rather there were disputes for Leontief Paradox. Leontief again repeated the same test and results were again the same, that is, US imports were still more capital intensive than exports.

 

Leontief again made an attempt to test the theory. This time he claimed that the labour of US was far more productive than the countries from which US imported its goods. However, this claim was not accepted by his critics. Leontief focused that human capital is also an important factor of capital and this also led to debate between various economists.

 

Hence,  the results are still not clear whether the Leontief’s Paradox is applicable or not. But after a gap, One more professor Robert Baldwins also conducted test in 1971 which also stated that US capital intensive importes were more than exports. But there were not enough facts to prove this, so the Leontief’s Paradox still continues.

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