The meaning of the Leontief Paradox.
The U.S. exports labor-intensive goods and imports capital-intensive goods, a result that is contrary to the H-O theory.
Leontief's explanation: effective labor
Since the quality of labor varies from country to country, and with the same combination of capital, the labor productivity of the United States is about three times that of other countries (such as Italy), so if other countries are used as a yardstick, the effective labor quantity of the United States should be three times that of existing labor. In terms of the amount of effective labor, the United States should be a country with relatively abundant (effective) labor, while capital has become a relatively scarce factor in the United States.
Other explanations of the riddle of Leontief.
i) Human capital.
General labor can be divided into two categories: unskilled labor and skilled laborSkilled labor refers to labor with certain skills, which are not innate, but accumulated through acquired education, training and other means. Since this acquired effort is similar to the investment behavior of physical capital, we call the latter type of labor human capital. American economics by Peter B. KaneKenen later found that U.S. exports were dominated by physical and human capital-intensive goods.
b) Natural resources.
Natural resources and capital are often complementary in production, and as a result, some natural resource-intensive products, such as energy, tend to be capital-intensive as well. From a natural resource perspective, some natural resources in the United States are relatively scarce (due to natural or man-made factors), such as oil. As a result, many of the U.S. imports are natural resource-intensive. From a natural resource perspective, the United States actually imports its scarce natural resources, not capital.
3) Factor intensity reversal
Under some factors, it is capital-intensive, it is labor-intensive, but under others, it becomes labor-intensive, it becomes capital-intensive. This is because Leontief calculates the factor density of imported goods when they are produced in other countries according to the technical conditions of the United States, but in the case of factor density reversal, this may cause misunderstanding.
4) Demand reversal
When a country has a comparative advantage in production over a certain commodity, but because its citizens have a special preference for the commodity, the direction of imports originally determined by the H-O theorem will change.
The explanation of Leontief's riddle: Although the United States is relatively rich in capital, if the consumption structure of American consumers is dominated by capital-intensive goods (mainly manufactured goods), then the United States may export labor-intensive products and import capital-intensive products.