International Business Chapter 9 Leontief Test This Would Suggest That Participation Trade Rather Than Autarky The

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CHAPTER 9

EMPIRICAL TESTS OF THE FACTOR ENDOWMENTS APPROACH

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9. Since about 1970, in both developed and developing countries, the ratio of trade to GDP

has __________; over the same time period, in the United States and the European

Union, the ratio of imports from developing countries to total imports __________.

10. The “Leontief paradox” refers to the empirical finding obtained by Wassily Leontief that,

even though the United States was generally thought to be a relatively __________

country, it was found to be __________.

d. capital-abundant; exporting relatively skilled-labor-intensive goods and

importing relatively unskilled-labor-intensive goods

11. In the production process of a final good industry, the direct factor requirements per unit

of output will be __________ the total factor requirements per unit of output; if the

industry is relatively capital-intensive when classified by direct requirements, it

__________ be relatively capital-intensive when classified by total requirements.

12. Suppose that, in a real-world situation, a labor–abundant country’s tariffs and nontariff

barriers are levied relatively more heavily on labor-intensive goods than on capital-

intensive goods. In this situation, a Leontief two-factor test would, other things equal, be

__________ the country’s adherence to the Heckscher-Ohlin trade pattern, in comparison

with a situation where trade barriers were absent.

c. unbiased in its finding concerning

d. biased toward confirming, biased against confirming, or unbiased in its finding

concerning – cannot be determined without more information

13. If the capital/labor ratio in import-competing industries in country A is $8,000 per worker

and the capital/labor ratio in A’s export industries is $4,000 per worker, then country A’s

“Leontief statistic” is __________.

a. 0.50

14. A 1974 empirical study (by Steven Rosefielde) found that the “Leontief statistic” for the

Soviet Union in its trade with Western industrialized nations was 1.44, and its “Leontief

statistic” for its trade with developing countries was 0.43. If the Soviet Union was

trading in accordance with the Heckscher-Ohlin theorem, these results suggest that the

Soviet Union was relatively __________ compared to its Western trading partners and

__________ compared to developing countries.

15. If the U.S. trade pattern is as indicated by the Leontief test, this would suggest that

participation in trade rather than in autarky by the United States has __________ the real

return to U.S. capital and __________ the real wage of U.S. labor.

a. increased; also has increased

16. If increased Heckscher-Ohlin-type trade were the major factor leading to increased

income inequality in the United States, then one would expect that the relative prices of

skilled labor-intensive goods to unskilled labor-intensive goods would have __________

and that nontraded goods industries would have __________ their use of unskilled labor

relative to skilled labor.

a. risen; decreased

17. If demand reversal is the explanation for the Leontief paradox, this would imply that the

demand by the United States for labor-intensive goods is relatively __________ and

therefore that U.S. wages would be relatively __________ in comparison to wages in

U.S. trading partners.

18. In roughly the last three decades, the traditional measures of income inequality (such as

the Gini coefficient) have shown that the degree of inequality in the United States has

__________. However, if it were the case over that time period that the prices of goods

primarily consumed by high-income individuals have increased more rapidly than the

prices of goods primarily consumed by low-income individuals, then “real income”

inequality in the United States over that same time period would likely have been

_________ than suggested by the traditional measures.

a. decreased; decreased to a lesser extent

19. If relatively labor-abundant country A has a “Leontief statistic” greater than 1.0 and

relatively capital-abundant country B has a “Leontief statistic” less than 1.0, this suggests

that

a. neither country is conforming to the prediction of the Heckscher-Ohlin theorem.

20. Which one of the following could NOT theoretically be offered to help in explaining the

“Leontief paradox?”

d. a relatively strong U.S. demand for relatively capital-intensive goods and/or a

relatively strong foreign demand for relatively labor-intensive goods

21. In the United States, in approximately the last 2-3 decades, the supply of highly-skilled

(HS) labor relative to less-highly-skilled (LS) labor has been rising. At the same time,

the ratio of wages of HS labor relative to LS labor has been __________, and, therefore,

the demand for HS labor relative to LS labor must have been increasing __________ than

the supply of HS labor relative to LS labor.

a. falling; less rapidly

22. A criticism of the argument that trade has been an important cause of increased U.S.

wage inequality in recent decades is that, if trade were an important cause, the nontraded

goods industries would have responded to the __________ in the price of skilled labor

relative to unskilled labor by using __________ skilled labor relative to unskilled labor.

23. If, as is suggested by some recent research, a country’s consumers have a preference for

home goods over foreign goods that is NOT accounted for in standard analysis, then this

__________ will lead to a prediction of trade volume by the standard analysis that is

__________ than the actual amount of trade volume of the country.

a. “foreign bias”; larger

24. If the Heckscher-Ohlin theorem is valid in practice (and assuming that capital and labor

are treated as the only two factors in the real world), then the “Leontief statistic” for a

labor-abundant country would be __________.

d. less than zero

25. Which one of the following has NOT been offered as a reason for increased wage

inequality in the United States in recent decades?

a. the increased adoption by firms of skill-biased technological change

* b. an increase in the strength of labor unions

c. a decline in the real minimum wage

d. increased imports of labor-intensive goods from developing countries