Evidence on the Heckscher-Ohlin Theorem

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International Trade

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Evidence on the Heckscher-Ohlin Theorem

This video discusses evidence for and against the Heckscher-Ohlin Theorem, which hypothesizes that capital-intensive countries will export capital-intensive products, and labor-intensive countries will export labor-intensive products. The theorem was called into question by Nobel Prize-winner Wassily Leontief who calculated labor-output and capital-output ratios for a variety of sectors in the U.S. He then calculated how much capital and labor are embodied in U.S. exports. Leontief found that, although the U.S. by most standards is considered a capital-intensive country, the content of American exports are labor-intensive and content of imports are capital-intensive — the opposite of what the Heckscher-Ohlin Theorem would have you believe. Researchers have been working to solve this puzzle for the past 60 years. Can we save the Heckscher-Ohlin Theorem? This video proposes some ways the theorem can still be useful.

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