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Author:
J.L. Ford, Assitant Lecturer University of Manchester, uk

The Leontif Paradox and the Ohlin-Heckscher Theory of the Basis of Commodity-Trade, Vol. 15, No. 2 May 1962

(pp. 299-321)
JEL classification: F10; F14
Keywords: Ohlin-Heckscher Theory; Leontif Paradox; International Trade

Abstract

The following proposition is a well-known one in the theory of international trade: a country exports those commodities produced with relatively large quantities of the country' s relatively abundant factor. This is how the Ohlin-Heckscher theory of trade would seek to explain the "basis of trade" in commodities where we mean by "basis of trade" those factors - or, in their theory, the "one factor" - that can be held to account for observed differences in relative commodity prices between any prospective members of an international economy (which are assumed to be the "cause" of trade).
This proposition is more usually labelled the Ohlin-Heckscher basic theorem, and it is derivable from what I call their basic model of trade. There are really two "models" of trade as far as the Ohlin (or Ohlin-Heckseher) theory is concerned, a subsidiary one and the basic one. In this paper, however, we shall only be considering the main Ohlin-Heckscher conclusion that emerges from the latter model.
The basic theorem that we shall be discussing in this paper depends for its validity on a number of implicit and explicit Ohlin-Heckscher assumptions. Altering these, we can modify the basic theorem, i.e., the above proposition. But since we are only interested in the basic theorem we shall have to leave this and other issues out of the folIowing discussion. All that is necessary for the remainder of this paper is the above-stated proposition or "basic theorem": the assumptions that are necessary for this to be a "correct" conclusion are relegated to the Appendix. It can easily be seen that the theorem is derivable from these postulates.
This basic theorem can quite easily be tested at a theoretical level and can be held to be an incorrect conclusion for several reasons.
Here, however, we are not concerned with this kind of test for this theorem, but merely with an empirical test, which is really the "final" or "complete" test of a theory. This empirical test is the one that has been carried out by Leontief. The main object of this paper then is to consider the basic theorem in the light of the latter's study of the structure of American foreign trade. The basic theorem states that trade depends on relative factor-endowments (factors here being labour, land, capital, etc.), such that a country that is
deemed to be relatively well-endowed with capital will export products or commodities that require for their production a relatively large amount of capital.


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