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

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.

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.