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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But as Leontief notes: Baldwin pointed out that the exclusion of even natural-resource industries was tehory enough to repudiate the paradox. However, in her trade with the United States, the exports were capital-intensive and imports were labour-intensive.

According to Travis, U. Apart from that, the model is depending on vulnerable and unrealistic assumptions.

The focus is then on indirect factor trade. Capital inputs are not homogenous across industries. Leontief ‘s attempt to test the Heckscher—Ohlin theory “H—O theory” empirically.

Another explanation is the so-called factor-intensity reversals. The higher capital-intensity in import-replacement industries of the Leontiet. The country will still use more capital intensive methods in its export industries than any other country.

The Leontief Paradox to Heckscher-Ohlin Theory | Economics

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. However, available empirical evidence is not very conclusive either way.

This study showed that Canadian exports to the U. Theody attempts were made by them to either defend the paradox or discover its logical flaws and prove it wrong. Therefore, in terms of H-O theory, it is expected that the US would export capital-intensive goods and import labour-intensive ones.

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Although, Brown and Travis contradicted this by showing a demand bias in favour of labour-intensive goods Perdikis and Kerr The HOV Theorem states that if trade is balanced, a country internationzl the services of its abundant factors through trade in goods.

Leontief reviewed Minhas’s book and pointed out that only 17 out of possible reversals did occur for the relevant range of factor prices.

Leontief Paradox

US was known for imposing unduly heavy customs duties on its imports from labour-abundant developing countries such as fabrics, handicrafts, carpets, etc. Leontief may have oversimplified the production functions and failed to recognize the endowments of natural resources. A study made by A. Travis emphasized that the tariff policies adopted by different trading countries often distorted the pattern and composition of traded commodities. Hong analyzed Korea’s trade patternwhich was consistent with the HO theory.

Rather than one country dominating the industry with a comparative advantage, both countries trade different brands of cars between them.

Me computed for various industries the direct and indirect capital and labour required to produce a given dollar value of output. China is abundant in labor. The value of extra human capital embodied in labor is: According to Buchanan, Leontief made use of investment requirement co-efficient as the capital co-efficients. That accounted for high labour-intensity of her imports from the United States. But it is difficult to believe that US is poor in natural resources.

Static theories such as the factor price equalization theorem or the H. The high labour-intensity in the United States exports and capital-intensity in case of import-replacement products can be attributed to the demand pressures in the United States and her trading partners. In a study conducted by Kreinin init was revealed that the productivity of American labour was more than that of the foreign labour only by 20 to 25 percent and not by percent.

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The US imports natural resource-intensive products, but it appears that the US is importing the capital- intensive goods. Nihonbashi Japan bridge fish market is the predecessor of today’s Tsukiji fish market with over 60, employees.

Linear B tablet Omniglot with syllabaries, partly deciphered, similar to hiragana.

The Leontief Paradox to Heckscher-Ohlin Theory | Economics

By importing such products, the United States actually conserves her scarce natural resources. It means that the average American worker is three times as effective as leontieef would be in the foreign country.

The paradox was attacked leontjef Valvaris-Vail on the ground that it was based on the input-output table showing the fixed input-output co-efficients. In such a situation, the H-O theory cannot be sustained and Leontief paradox may become applicable in one of the two countries.

A along with Japan, he would have found that U. However, this claim of Leontief was not widely accepted. But Leontief failed to provide any convincing reason for making this rather arbitrary hypothesis.

The capital-labour ratio was higher in the import- replacement industries than the export industries. If the human capital component is added to the physical capital, the U. In such cases, there must be some problems that offset the HO trade patterns.

However, estimates of human capital is sensitive to the interest rate chosen.