The Leontief method is often unable to account for differences in production efficiency, a very important force in open capitalist markets.
To demonstrate this we can look at Leontief’s own work on the Heckscher-Ohlin theory.
Heckscher Ohlin Theory- Each country
exports the commodity that uses its abundant resource extensively.
Leontief began by spliiting the US Economy into 50 sectors, 38 of which
produced goods that entered the international market, 12 of which produced non-tradable goods that stayed domestically. He then ran the sectors through his input-output model to calculate the final production necessities for
capital and labor for imported and exported goods.
His final matrix looked like this:
Capital Requirement
Labor Requirement
Exports
aKx = 2.550780
aLx = 182.313 man-years
Imports aKm = 3.091339
aLm = 170.114 man-years
kx = aKx/aLx = $14,300 Exports
km = aKm/aLm = $18,200 Imports
Thus we see that, according to Leontief’s calculations, the US’s imports are 30% more capital intensive than its exports
km = 1.30 kx
This blatant contradiction to the intuitive Heckscher Ohline Theory has had economists baffled since 1947 when Leontief first published the results of his findings. Leontief’s own thoughts, however, stray towards efficiency as the reason for difference. He wrote that American industries must be far more
efficient (capital efficient) than
foreign industries so the imports(or foreign made goods) are much more capital intensive than the exports(which are produced much more efficiently).
In 1965, a survey conducted by Kreinin found that at the time of Leontief’s work, US workers were 20-25% more efficient than European and foreign workers. While this does not completely explain the difference, it does give some credence to Leontief’s hypothesis that it was efficiency that accounts for the difference.
http://www.econ.iastate.edu/classes/econ355/choi/leo.htm
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