Question

1. Explain the Leontief paradox. Make sure to explain why it is a paradox. Provide at least

   three explanations for this paradox.

Answer 1

Leontief paradox is one of the most important findings where Leontief got to prove the Heckser Ohlin theory wrong and he actually did this by taking United States as an example where according to H-O theory, labour rich countries will produce labour intensive goods and capital rich countries produce capital rich goods but by taking United States as an example which is the capital rich country, it is producing more labour intensive goods as well when compared to other labour which countries and this is a paradox because it does not follow the main statement of H-O theory.

There are certain explanations why this happened

1) the productivity of labour might differ in countries where United States labour can have more productivity which might make United States ahead in labour intensive goods as well

2) research took place after the World War II United States to the major responsibility of getting the world back on its feet and that is the reason why the result can be biased

3) The wages in United States are high which can bring in more quality labour as well