Leontief Paradox vs. Leontief Trade and Localized Factor Prices vs. Localized Trade Patterns

Baoping Guo ()
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Baoping Guo: College of West Virginia (renamed Mountain State University in 2013 and now is West Virginia University Institute of Technology)

International Advances in Economic Research, 2024, vol. 30, issue 1, No 5, 83-105

Abstract: Abstract Effective endowments and virtual endowments are insightful ideas to incorporate different technologies with the Heckscher-Ohlin-Vanek framework. This study shows that trade patterns are localized when countries have different technologies, while factor prices are non-equalized (or localized). The Leontief paradox is a localized trade phenomenon or pattern conceptually. It demonstrates that both effective endowments and virtual endowments can explain and present the trade pattern observed in the Leontief test. The core idea of the effective endowment (and the virtual endowment) is that a country exports its effective-abundant factor referred to by its productivity. This paper illustrates that the Leontief paradox arises naturally if a country’s actual factor abundance is inconsistent with its effective factor abundance. The study presents the price-trade equilibrium with non-equalized factor prices to help view trade patterns as trade consequences. The study shows that the Leontief paradox phenomenon may occur even in the absence of factor intensity reversal. The study proposes the factor price definition of trade patterns that mirrors trade patterns defined by factor abundances.

Keywords: Leontief paradox; Factor price localization; Factor price non-equalization; General trade equilibrium; Integrated world equilibrium; Factor intensity reversal; Effective endowments; Sign prediction (search for similar items in EconPapers)
JEL-codes: F00 F10 F15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11294-024-09886-1

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