The United States, the most capital-rich economy of its day, exported goods that were more labour-intensive than the goods it imported.
Leontief tested the Heckscher-Ohlin theory of trade against American input-output data for 1947 and found the opposite of what it predicted. The explanations offered since are that American labour was more productive per worker, that human capital belongs inside the measure of capital, and that technology differs across countries in ways the theory assumed away. It is the standard example of a clean theory meeting its own data.
In practice
- A country convinced that it competes on machinery discovers that its exports are carried by the skills of the people running the machines.
- A firm sure its advantage is its equipment finds that the equipment is for sale to everyone and the crew is not.
- Standing
- A measured anomaly rather than a paradox in the logical sense. Later work using human capital and multiple factors reduces it without erasing it.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- Rules for choosing, and the paradoxes that humbled the theory