CHAPTER 7: Heckscher–Ohlin Trade Flows: A Re-appraisal

The famous Leontief paradox compared the factor proportions used in a country’s export sectors with those used in that country’s import-competing sectors in order to conclude whether a country was relatively capital abundant (in a two-factor, labor, and capital setting). When examined in a two-factor, many commodity setting, this procedure reveals the troubling conclusion that as a country’s relative capital endowment rises, its export sector relative to its import-competing sector cycles from being labor-intensive to being capital-intensive, to being labor-intensive, etc., which serves to invalidate the Leontief procedure.