Leontief Paradox Research Articles

تطور نظريات التجارة الكلاسيكية الحديثة ومدى مساهمتها في فهم أنماط التجارة وعمليات التبادل التجاري في الاقتصاد العالمي.

Over the past century, international trade theories have testified to an increasing role in knowledge. Depending on the classical trade, theories of Adam Smith in 1776 and David Ricardo in 1817 based on labor while an element of cost, neoclassical contributions made possible to take the capital and other production factors into account through the concept of opportunity cost and undermining knowledge. The paper referred to the Mercantilism definition history and how it affects foreign trade factors. Besides to the research paper indicates the modern trade theories of Heckscher-Ohlin-Samuelson, which used two factors model that only included labor and capital. As of the 1960s, parallel to the debate over the Leontief Paradox and new international trade theories began to cover knowledge and related concepts like skilled labor and technology gap, product cycle and others. Moreover, the study builds on a review of the literature on classical trade theories as an example of comparative advantage to the new trade theories currently used by many advanced countries to direct industrial policy and trade. As a result, the study discusses that classical trade theories are still relevant now and considers how modern trade theories contribute to understanding trade patterns and benefitting from them in the world. Keywords: International Trade Theories, Development, Classic Theory, Global Economy

The Second Leontief Paradox: Economic Theory or Economic Engineering?

The article analyzes the situation, conventionally called the "Second Leontief Paradox", when a recognized scientist, Nobel laureate and undisputed authority in the academic environment, it turns out, has practically no place in modern economic theory - neither within the "mainstream" nor in unorthodox directions. This paradox is considered in the context of four questions: (1) does Leontief have a “theory” at all; (2) to which theoretical school Leontief belongs or at least gravitates; (3) what is the main factor in the formation of the paradox under consideration; (4) what are the prospects for Leontief's approach in macroeconomics. To understand this paradox, it is proposed to use the terms introduced by G. Mankiw - an economist as a scientist and an economist as an engineer. It is concluded that there is still a gap between "theory" and "engineering" in economics. It is assumed that such a gap, including in connection with the rapid growth of a large amount of economic data and universal digitalization, may gradually decrease.

Leontief Paradox vs. Leontief Trade and Localized Factor Prices vs. Localized Trade Patterns

Leontief Paradox vs. Leontief Trade and Localized Factor Prices vs. Localized Trade Patterns

The Leontief Paradox Redux

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.

Supply Size in Exports: Expansion Input-Output Analysis Approach

In recent years, Vietnam has joined international intergration by strong export agreements of bilateral and multilateral; Vietnam’s merchandise export in 1995 was only US $5.4 billion, in 2018 Vietnam’s merchandise export increased by 45 times compared to 1995 with US $244 billion. Vietnam’s imports increased by 29 times in 2018 compared to 1995. This study is an attempt to test a method of estimating the influence of exports on several Supply-sidefactors such as production value, value added and imports through the expansion of the standard system W. Leontief I.O and Miyazawa-style economic-demographic relations. This study also tries to make an experiment in the “Leontief Paradox”.The result is that Vietnam’s export value spread to production and imports but spread low to added value, especially in the processing industry group’s fabrication. The study is based on the non-competitive I.O table in 2012 and 2018 with 16 sectors.

Production Globalization Makes China’s Exports Cleaner

Summary Production globalization, which is when firms expand their supply chains across national boundaries, creates an opportunity for developing countries to engage in international production networks via trade. Described as the world's factory, China specializes in assembly manufacturing mainly through processing exports. Firms use imported intermediate inputs for production and, after processing or assembly, re-export the finished products to international markets. Here, we show that the carbon efficiency of China’s processing exports is greater than that of its ordinary exports. If the impact of trade heterogeneity is ignored, then the domestic emissions embodied in China’s exports will be overestimated by 23.4%, and the foreign emissions embodied in China’s exports will be underestimated by 29.3%. If the degree of global value chain participation, which ranges from 0 to 1, increases by 0.1, although foreign emissions embodied in China’s exports would increase, the gross carbon intensity of China’s exports will decrease by 11.7%.

The Heckscher-Ohlin Theorem and the Mexican Economy 1980, 1990, 2003 and 2013

Neoclassical trade theory is largely based on the Heckscher-Ohlin (H-O) theorem. This proposition has survived all criticisms for many decades and it is still the basis for orthodox free-market trade policies. The theorem has been tested by various methodologies under different scenarios. Still, the most cited test was conducted by Wassily Leontief for the US economy using its 1947 input-output table. However, his results contradicted the theorem’s predictions, which gave rise to the so-called, ‘Leontief paradox’. We test the H-O theorem as applied to the Mexican economy to find out whether the economic strategy with free trade has bolstered Mexico’s comparative advantages based on its relative factor endowments, as the theorem maintains. Our results clearly show that the H-O theorem does not apply to Mexico in the period following trade liberalization.

Growth, Factor Endowment and Trade of India - A Review of Literatures

The factor endowment theorem better known as the Heckscher - Ohlin Theorem has been much been researched topic in the arena of International Trade. The H-O theorem envisages that trade between different countries is caused due to differences in relative factor endowments of those countries. H-O theorem is a theorem of long term general equilibrium in which the two factors are mobile between sectors. Leontief was the first to find that despite the fact that the USA was capital-abundant country it was exporting labour-intensive products. This clearly indicated factor reversal in the case of USA and popularly came to be known as Leontief paradox. This very study instigated the researchers all over the world to test H-O theorem for other countries. This paper is an attempt to review literatures related to the studies on growth, factor endowment and trade of India.

Reconsideration of Leontief Paradox by the Ricardo-Heckscher-Ohlin Model

Leontief’s test by using 1947 data showed that US as a capital abundant country exported labor-intensive commodities. Most studies and tests after Leontief test were to try to clear the paradox or to show the test results were wrong in somewhere. This paper demonstrates that a capital abundant country can export labor input as net factor content of trade from the Ricardo-Heckscher-Ohlin Model (Guo 2015b). This is the first study from the theoretical angle to predict that the conclusion of Leontief test is acceptable. It also demonstrates that commodity trade is not only indirect trade of factor endowments, but also of indirect trade of technologies. The study summarizes three trade types by factor trade directions. The first one is the balanced factor content of trade or Heckscher-Ohlin type, in which home country’s factor content of trade, exported, equals foreign country’s factor content of trade, imported. The second type is the homogeneous factor content of trade, in which if home country exports capital input and imports labor input, foreign country will imports capital input and export labor input. Amounts of factor content of trade of two counties are not exact same by the different productivity of factors of two countries. The third type is the asymmetrical factor content of trade, in which two countries export net same type factor input and import same type factor input, i.e. if home country exports capital services and imports labor services, foreign country also exports capital services and imports labor services. This is caused by differences of productivities of factors and by the differences of technology structures, across two countries. Some of Literatures explained the Leontief paradox by factor intensity reversal (FIR). This paper demonstrates that the FIR explanation, an insight prediction, is right; however the trade is an asymmetrical factor content of trade. The numerical example of this paper exactly repeats the case that a capital abundant country exported labor-intensive commodities under free trade equilibrium.

Global Production Sharing and Leontief Paradox:Evidence from Trade between two South Asian Countries

The paper attempts to study the factor content of bilateral trade between the two developing countries of India and Sri Lanka. Given instances of production sharing between them and the extent of input trade that they engage in globally, it is only appropriate to use a framework which takes into account all these features. It uses the framework of Remier (2006) and Trefler and Zhu (2010) to find out if trade between them provides evidence of Hecksher-Ohlin pattern of trade. Results of the study provide evidence to support Leontief paradox with respect to this bilateral trade.

On The Leontief Non-Paradox

Ever since it was discovered sixty years ago, the Leontief paradox has made repeated appearances in a large number of empirical studies of trade behaviour across diverse countries and time periods and continues to do so. Although the paradoxical trade pattern is observed less frequently than the Heckscher - Ohlin trade pattern, the regularity and persistence of its observation, in spite of several remarkable improvements and refinements in the methodology for testing trade theories, raise doubts about the generality of the Heckscher-Ohlin theory itself. A truly general trade theory must be able to make predictions of all the observed regularities in trade behaviour. This paper suggests a model of international trade that not only generates both types of predictions but goes further to provide solutions for trade situations in which the Heckscher-Ohlin theory simply fails to make any prediction. In so doing the paper advances a new model of international trade which is entirely based on input-output analysis.

Does Nominal Devaluation Improve Income Distribution? Evidence from Bangladesh

The article aims to investigate the impact of nominal devaluation on income distribution in Bangladesh both in short and long runs. In doing so, Auto Regressive Distributed Lag (ARDL) bounds testing has been employed for cointegration, and Error Correction Model (ECM) has been used for short-run dynamics. The empirical psychology has confirmed the existence of long-run relationship between the variables. Furthermore our estimated results reveal that nominal devaluation tends to decrease income inequality. Though economic growth appears to improve income distribution, non-linear link between both the variables, however, depicts Kuznets’ inverted-U curve (1955). Financial development causes further deterioration in income distribution. Trade openness contributes to income inequality as discussed in Leontief Paradox.

A DUAL DEFINITION FOR THE FACTOR CONTENT OF TRADE AND ITS EFFECT ON FACTOR REWARDS IN US MANUFACTURING SECTOR

We introduce a dual definition of the Factor Content of Trade (FCT) using the concept of the Equivalent Autarky Equilibrium. Estimating a symmetric normalized quadratic revenue function for the U.S. manufacturing sector between 1965 and 1991, we find that the FCT for capital is positive, while the FCT for skilled and unskilled labor is negative, suggesting that the Leontief Paradox is not present. Then the growth rate of the factor rewards is decomposed to the FCT, endowments, and technological change effects. We find that technological change is the most important determinant in explaining wage inequality between skilled and unskilled labor. (JEL F11, F16, J31)

Is Inflation Regressive or Progressive? Long Run & Short Run Evidence from Pakistan

The present paper investigates an answer to a key question “is inflation regressive or progressive?” by utilizing time series data from 1971 up to 2005 with reference to Pakistan. The main focus of the study is on the inflation-inequality puzzle but other control variables are also included in the model that affect income distribution. We have utilized the most advanced technique FMOLS (Fully-Modified Ordinary Least Square) for long run and ECM (Error Correction Model) for short run dynamics. Our findings suggest that inflation is progressive in the case of Pakistan but with low magnitude. There is also a prevalence of a U-shaped relationship between inflation and income inequality in non-linear or non-monotonic phenomenon, but it is insignificant. Per capita income deteriorates income distribution, and seems to provide gains to non-poor individuals in the economy. Remittances as share of GDP, and human capital, also appear to increase income inequality in both periods but large size of the government seems to worsen income distribution in the long run. International trade and income inequality are positively correlated that confirms the existence of Leontief paradox in Pakistan not only in short run, but also in long run. Financial development declines income inequality insignificantly. Inverted U-shaped curve (Lafer-Curve) indicates an association of trade and income inequality in non-linear fashion insignificantly. This effort provides some new insights for policy makers and development planners in Pakistan. Keywords: Inflation; inequality; fully modifed ordinary least square; Pakistan.

On the “Technology Transfer” Paradox and “Worsening Terms of Trade” Paradox

This paper revisits some seeming paradoxes or puzzles in trade theory. We explore the socalled “technology transfer” paradox, which may be interpreted more generally in terms of what we call the “worsening terms of trade” paradox. We show both paradoxes are no more paradox than the Leontief paradox is. We also assert that, judging from the implications that international technology transfers have for the possible pattern of trade, the seeming paradoxes that require the pattern-of-trade reversals are less likely to occur under conditions of the Hecksher-Ohlin variable input proportions than under the Ricardian fixed proportions.

A Dual Definition for the Factor Content of Trade and its Effect on Factor Rewards in US Manufacturing Sector

In this paper, first we introduce a dual definition of the Factor Content of Trade (FCT) using the concept of the equivalent autarky equilibrium. A FCT vector is calculated by estimating a symmetric normalized quadratic revenue function for the US manufacturing sector for the period 1965 to 1991. The FCT for capital is positive, while the FCT for skilled and unskilled labor are both negative, suggesting that the Leontief Paradox was not present for the period of investigation. Capital is revealed by trade to be relatively more abundant compared to either type of labor, while skilled labor is relatively more abundant than unskilled labor. Then using the quadratic approximation lemma, the growth rate of the factor rewards is related to the growth rate of FCT, the growth rate of endowments and technological change. We find that technological change is the most important determinant in explaining wage inequality between skilled and unskilled workers in US manufacturing between 1967 and 1991.

An Empirical Examination of the Pollution Haven Hypothesis for India: Towards a Green Leontief Paradox?

Using input–output analysis, we examine whether India can be regarded as a pollution haven. We calculate the extra CO2, SO2 and NOx emissions induced by 1 billion rupees of additional exports. This is compared with the reduction of Indian pollution caused by an import increase of equal size. In contrast to what the pollution haven hypothesis states for developing countries, we find that India considerably gains from extra trade. Comparing 1996/1997 with 1991/1992, the gains have only increased, indicating that India has moved␣further away from being a pollution haven. The outcome is robust to changes in the underlying assumptions.

Wealth as a Determinant of Comparative Advantage

This paper shows that a country’s wealth can be an important determinant of comparative advantage when access to credit differs across sectors of the economy. Wealthier nations exhibit a comparative advantage toward goods produced in sectors facing more severe financial imperfections. These sectors are typically populated by small firms. Empirically this paper documents that these sectors are also labor intensive. Consequently, this theory partially offsets traditional sources of comparative advantage and offers an explanation for Trefler’s missing trade mystery and the Leontief paradox. Furthermore, the theory makes the relation between trade and income distribution endogenous.

ágazaton belüli kereskedelem az elméleti magyarázatok és az empirikus vizsgálatok tükrében

A több mint negyed századig uralkodó, modern kereskedelmi elméletnek számító Heckscher-Ohlin (HO) modellt a XX. század második felében egyre több kihívás érte. A tökéletes versenyt, állandó skálahozadékot és homogén termékeket feltételező, 2*2*2-es (termék-tényező-ország), eleganciáját technikai egyszerűségében hordozó modell, úgy tűnt, két jelentősebb területen nem kínál megfelelő válaszokat az empirikus tények magyarázatához. A modell konklúzióját, azaz hogy az országoknak azoknak a termékeknek a termelésében lesz komparatív előnyük, amelyek előállításához intenzíven használják az országban relatív bőségben rendelkezésre álló termelési tényezőt, először a Leontief-paradoxon, majd az ágazaton belüli kereskedelem empirikus tényei tették kétségessé. A tanulmány ez utóbbi jelenséggel foglalkozik, első részében bemutatva és rendszerezve a jelenség legjelentősebb elméleti modelljeit, a másodikban pedig - -a területen folyó empirikus vizsgálatok alapján - az intraindusztriális kereskedelmet befolyásoló legfontosabb tényezőket.

Research programs, model-building and actor-network-theory: Reassessing the case of the Leontief Paradox

Methodology of scientific research programs (MSRP), model-building and actor-network-theory (ANT) are woven together to provide a layered study of the Leontief paradox. Neil De Marchi's Lakatosian account examined the paradox within an Ohlin-Samuelson research program. A model-building approach rather highlights the ability of Leontief's input-output model to mediate between international trade theory and the world by facilitating an empirical application of the Heckscher-Ohlin Theorem. The epistemological implications of this model-building approach provide an alternative explanation of why Samuelson and other prominent economists ignored the paradox. By focusing on the network in which input-output analysis evolved, Bruno Latour's ANT further explains the response of international trade theorists.