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The Leontief Paradox

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  1. The Leontief Paradox In 1953 Wassily Leontief published the results of the most famous empirical investigations in economics, an attempt to test the consistency of the H-O Model with the U.S. trade patterns. Leontief’s objectives were: • to prove that the H-O Model was correct; and • to show that the U.S. exports were capital intensive

  2. The Leontief Paradox Leontief developed a 1947 input-output table for the U.S. to determine the capital-labor ratios used in the production of U.S. exports and imports. Leontief found that the U.S. exports used a capital-labor ratio of $13,991 per man year, whereas import substitutes used a ratio of $18,184 per man year.

  3. The Leontief Paradox The key ratio of [( KX / LX ) / ( KM / LM )] (13,991 / 1) / (18,184 / 1) = 0.77 was calculated. Given the presumption that the U.S. was relatively capital abundant, that ratio was just the reverse of what the H-O Model predicted. Thus, it is called the Leontief Paradox.