Leontif Paradox and the Factor-endowment Model

How does Leontif 's paradox challenge the overall applicability of the factor - giving model? In order to understand how Leontif Paradox challenges the overall applicability of factor giving theory, first you must understand what the factor giving theory asserts claims. Element donation theory states that trade among countries is based on differences in product prices before trade. The price of listed products depends on the possibility of production. The possibility of production can be linear under certain cost conditions or can be curved under increased cost conditions.

Heckscher-Ohlin (H / O) theory is also known as a factorization theory. . It is a basic model of trade and production. It emphasizes that the differences in factor charges among countries are the basis of international trade. The Heckscher-Ohlin model assumes two production factors and internationally uniform production for each of the two industries. This country exports Heckscher-Ohlin, which is relatively intensive use of relatively rich production factors by Elis Heckscher and Bertil Ohlin. Elis Heckscher is a Swedish economic historian who developed modern international trade theory in 1919. Heckscher's student Bertil Ohlin has a clearer and more comprehensive explanation of this theory. However, he published the book in 1933. He does not agree with the relative cost of international trade. (Jains, 2009) International cost trade has been carried out because the comparative cost theory points out differences in costs.

Compared to traditional theory, the new trade theory is based on comparative advantage factors in the model rather than external, and includes intra-industry trade, incomplete competition, factor donation liquidity, transportation costs, and economic and political It causes factors such as difference. Between countries. Intra-industry trade refers to trade in the industry that produces differentiated products in the same industry. This trade does not reflect a comparative advantage, but it reflects economies of scale. The return to scale (scale economy) and product differentiation are driving dynamics of intra-industry trade. The new trade theory assumes that all factors of production doubled and when the production doubled, it is assumed that the expansion of the scale of the industry will increase, which will make the industry participate in international trade.