ABSTRACT OF PAPER
Title: Leontief’s Paradox: Resolved or Continued?
Author: Paraskevopoulou Christina, Tsaliki Persefoni , Tsoulfidis Lefteris
According to the neoclassical theory of international trade described by the popular Heckscher-Ohlin (H-O) model, a country is expected to export (import) those products whose production requires the intensive use of the factor of production in relative abundance (scarcity). Leontief (1954) using input-output data of the US economy for the year 1947 found that the US, a capital abundant economy, exported labour-intensive products and imported capital-intensive ones. We present the hitherto empirical findings from many countries and we critically evaluate these findings versus the predictions of the theory. Are the findings paradoxical or the standard neoclassical theory fails a very crucial test? We argue that the problem rests with the theory and that the findings for the US economy at least are inconsistent with the theory. The analysis continues within the framework of an input-output model of an economy of two primary factors of production producing two composite commodities, one designed to capture the character of exports and the other the imports. In order to shed more light over the patterns of international trade and the factors that affect it, we also apply the structural decomposition analysis to allocate the total change in exports or imports to trade and technology change effects. The model is operationalized with actual data of the US economy and our findings show that the seemingly paradoxical findings are alive and well with whatever these imply for the standard neoclassical theory of international trade.
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