【正文】 n capital intensive, lines of production”. ? “In other words, this country resorts to foreign trade in order to economize its capital and dispose of its surplus labor, rather than vice versa”. ? “The widely held opinion that—as pared with the rest of the world—the United States? economy is characterized by a relative surplus of capital and a relative shortage of labor proves to be wrong. As a matter of fact, the opposite is true”. Who can tell me who I am? 2020/9/15 Is the Leontief?s paradox true? ? Baldwin Test (Professor Robert E. Baldwin (1971) used the 1962 US trade statistics to almost entirely repeat what Leontief did by using the data of 1947 and 1951): (K/L)m = (K/L)x, in consistent with Leontief?s paradox. Support HO theory 2020/9/15 Is the Leontief?s paradox true? (cont.) ? Tests on Global Data (This study confirms the Leontief paradox on a broader level) 2020/9/15 Is the Leontief?s paradox true? (cont.) Trade Between the United States and South Korea, 1992 (million dollars): NorthSouth trade in manufactures seems to fit the HeckscherOhlin theory much better than the overall pattern of international trade. 2020/9/15 How to understand Leontief?s paradox? ? Factor Intensity Reversal (要素密集度逆轉(zhuǎn) ) ? Demand bias (需求偏好論 ) ? Trade barriers (貿(mào)易壁壘論 ) ? Natural resources (自然資源論 ) ? Heterogeneous [,het?r?u39。l?k??ri]goods (A relatively capitalintensive approach must be employed in production processes of those goods) since the overall ine levels in those countries are much higher than the lessdeveloped countries. ? In order to meet a great requirement of their consumers many capitalintensive goods have been shipped from abroad. 2020/9/15 ? The opposite situation could be found in the lessdevelop countries with a very low ine. ? Consumption bias in those lowine countries would strongly toward inferior goods (They are basically labor intensive) and therefore they do import laborintensive goods from abroad. 2020/9/15 How to understand Leontief?s paradox? ? Factor Intensity Reversal (要素密集度逆轉(zhuǎn) ) ? Demand bias (需求偏好論 ) ? Trade barriers (貿(mào)易壁壘論 ) ? Natural resources (自然資源論 ) ? Heterogeneous labor (勞動(dòng)力不同質(zhì)論 ) ? Human capital (人力資本論 ) 2020/9/15 Trade barriers ? William Travis, suggested that the Leontief paradox might be due largely to tariffs and other forms of protection. There is evidence that, in the United States and some other developed countries laborintensive industries are relatively heavily protected. Such trade protection must influence trade patterns of those countries. ? Robert E. Baldwin tried to explain what he discovered by considering specific tariff policy and the other relevant trade policies taken by the United States. The US takes a lot of measures to protect its laborintensive industries and at the same time discourages its hightech goods exports by so many means. See: William. P. Travis, The Theory of Trade and Protection, Cambridge: Harvard University Press, 1964 and Robert E. Baldwin, Determinants of the Commodity Structure of . Trade, American Economic Review 61, no. 1 March 1971. 2020/9/15 Trade barriers (cont.) ? Such mixture of trade policies must have great impacts on the actual trade pattern of the US. ? On one hand, protectionist policies, especially the high trade barriers, must inevitably hinder the foreign laborintensive modities from entering into the US domestic market. Consequently labor intensity of US imports would be relatively reduced. On the contrary, capital intensity of US imports would be relatively increased. ? On the other hand a set of preferential policies for speeding up US exports would inexorably[in39。terein]地域 ). ?Manufactures are produced using capital and labor (but not land). ?Food is produced using land and labor (but not capital). ? Labor is therefore a mobile factor that can be used in either sector. ? Land and capital are both specific factors that can be used only in the production of one good. ?Perfect Competition prevails in all markets. 2020/9/15 Prices, Wages, and Labor Allocation ? In each sector, profitmaximizing employers will demand labor up to the point where the value produced by an additional personhour equals the cost of employing that hour. – The demand curve for labor in the manufacturing sector can be written: MPLM PM = w – The wage rate equals the value of the marginal product of labor in manufacturing. – The demand curve for labor in the food sector can be written: MPLF PF = w – The wage rate equals the value of the marginal product of labor in food. 2020/9/15 ? The wage rate must be the same in both sectors, because of the assumption that labor is freely mobile between sectors. ? The wage rate is determined by the requirement that total labor demand equal total labor supply: LM + LF = L Prices, Wages, and Labor Allocation (cont.) 2020/9/15 PM X MPLM (Demand curve for labor in manufacturing) PF X MPLF (Demand curve for labor in food) Wage rate, W Wage rate, W W1 1 L1M L1F Labor used in manufactures, LM Labor used in food, LF The Allocation of Labor 2020/9/15 Distribution of ine ? What happens to the allocation of labor and the distribution of ine when the prices of food and manufactures change? ? Two cases: ? An equal proportional change in prices ? A change in relative prices 2020/9/15 W1 1 PF increases 10% Wage rate, W Wage rate, W PF 1 X MPLF Labor used in manufactures, LM Labor used in food, LF 10% wage increase PM increases 10% PM 1 X MPLM W2 2 PF 2 X MPLF PM 2 X MPLM An Equal Proportional Increase in the Prices of Manufactures and Food 2020/9/15 – When both prices change in the same proportion, no real changes occur