The Leontief Paradox Redux

Abstract

AbstractShortly after Edward E. Leamer found that the Leontief Paradox was based on a simple conceptual misunderstanding in 1980, Richard A. Brecher and Ehsan U. Choudhri in their 1982 article argued that the fact that the United States exported labor services was, in itself, paradoxical because it is true if and only if its per capita consumption is less than the world average. Surprisingly, however, no formal answer to this paradox has been provided for nearly four decades. This paper revisits this paradox and formally shows that the paradox can be resolved if the Heckscher–Ohlin–Vanek model takes into account technology differences across countries and trade imbalance. In contrast, the paradox cannot be resolved even if the analysis takes into account quasi‐homothetic preferences, the Armington home bias, or offshoring.