Leontief's paradox in economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 is that the country with the world's highest capital

Capital (economics)

In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...

-per worker has a lower capital/labor ratio

Capital intensity

Capital intensity is the term in economics for the amount of fixed or real capital present in relation to other factors of production, especially labor...

 in exports than in imports.

This econometric find was the result of Professor Wassily W. Leontief's attempt to test the Heckscher-Ohlin theory

Heckscher-Ohlin theorem

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively...

 empirically. In 1954, Leontief found that the U.S.

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 (the most capital-abundant

Factor endowment

In economics a country's factor endowment is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing. Countries with a large endowment of resources tend to be more prosperous than those with a small endowment, all...

 country in the world) exported labor-intensive commodities and imported capital-intensive commodities, in contradiction with Heckscher-Ohlin theory ("H-O theory").

• In 1971 Robert Baldwin
  Robert Baldwin
  Robert Baldwin was born at York . He, along with his political partner Louis-Hippolyte Lafontaine, led the first responsible ministry in Canada, regarded by some as the first truly Canadian government....
  
   showed that US import
  Import
  The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
  
  s were 27% more capital-intensive than US exports in the 1962 trade
  Trade
  Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
  
   data, using a measure similar to Leontief's.
• In 1980 Edward Leamer questioned Leontief's original methodology on Real exchange rate grounds, but acknowledged that the US paradox still appears in the data (for years other than 1947).
• A 1999 survey of the econometric literature by Elhanan Helpman
  Elhanan Helpman
  Elhanan Helpman is an Israeli-American economist who works in the field of international trade, political economy and economic growth.-Biography:...
  
   concluded that the paradox persists, but some studies in non-US trade were instead consistent with the H-O theory.
• In 2005 Kwok & Yu used an updated methodology to argue for a lower or zero paradox in US trade statistics, though the paradox is still derived in other developed nations.

For many economists, Leontief's paradox undermined the validity of the Heckscher-Ohlin theorem

Heckscher-Ohlin theorem

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively...

 (H-O) theory, which predicted that trade patterns would be based on countries' comparative advantage

Comparative advantage

In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...

 in certain factors of production (such as capital and labor).