The Leontief Paradox Redux

Author: Kozo Kiyota
Date: 2020/10/7
No: DP2020-018
JEL Classification codes: F14
Language: English
[ Abstract / Highlights ]

Shortly after Leamer (1980) found that the Leontief Paradox was based on a simple conceptual misunderstanding, Brecher and Choudhri (1982) 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.