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Solving Leontief's Paradox with Endogenous Growth Theory
Date Issued
2018-11-29
Date Available
2019-05-22T12:25:55Z
Abstract
Theories of international trade have severe difficulties in explaining why, despite i) substantial differences in factor-proportions across industries and ii) considerable cross-country differences in capital-labor ratios, the iii) the evidence for factor-proportions trade is rather weak. We propose a simple explanation of this well known finding: standard trade theories treat important forces such as the distribution of productivity within the economy as exogenous. We argue instead that the productivity allocation is endogenous and counter-balances factor-proportion differentials be- tween countries. Consequently, comparative advantage across countries of different development levels is negligible and this is why the incentives for trade are low.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
26
Series
UCD Centre for Economic Research Working Paper Series
WP2018_19
Copyright (Published Version)
2018 the Authors
Classification
F11
F14
F41
O47
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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