On The Leontief Non-Paradox

Abstract

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.