The Leontief Paradox, Reconsidered

Abstract

Using the Heckscher-Ohlin-Vanek model of trade, it is shown that a country is revealed to be relatively well endowed in capital compared with labor if and only if one of the following three conditions holds, where K"x, K"m, L"x, L"m, K"c, L"c are capital and labor embodied in exports, imports, and consumption: (a) K"x - K"m > 0, L"x - L"m < 0; (b) K"x - K"m > 0, L"x - L"m > 0, (K"x - K"m)/(L"x - L"m) > K"c/L"c; (c) K"x - K"m < 0, L"x - L"m < 0, (K"x - K"m)/(L"x - L"m) < K"c/L"c. Leontief's data for the United States in 1947 satisfy b, and the United States is actually revealed by trade to be capital abundant. The comparison by Leontief of K"x/L"x with K"m/L"m is shown to be theoretically inappropriate.