CA Foundation · Business Economics · International Trade
The Leontief paradox is the finding that:
The Leontief paradox is the empirical finding that the USA, a capital-abundant country, exported goods that were less capital-intensive than the goods it imported. This contradicted the Heckscher-Ohlin prediction that a country exports goods intensive in its abundant factor.
- AThe USA, a capital-abundant country, exported goods that were less capital-intensive than its importsCorrect
- BCountries always export goods in which they have absolute advantage
- CProduct life cycles shift production from developed to developing countries
- DTrade between countries of similar income is always greater than trade between dissimilar countries
Explanation
Wassily Leontief tested the Heckscher-Ohlin theory with US data and found that US exports were more labour-intensive than its imports, although the USA was capital-abundant. This contradicted the theory's prediction. Options C and D describe other ideas, not this paradox.
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