Revisiting the Leontief Paradox From a Value‐Added Trade Perspective

ABSTRACT This study revisits a well‐known thesis in international trade theory—the Leontief paradox—from a value‐added trade perspective within a global industrial linkage framework. Using the Heckscher–Ohlin model as a foundation, this paper employs world input–output tables and socioeconomic accounts compiled by the European Union to calculate the value added embodied in bilateral trade for specific economies. The analysis computes the capital‐to‐labor ratios of all traded goods for these economies from 2000 to 2014, aiming to identify the potential existence of the Leontief paradox. Our findings reveal that the Leontief paradox appears in many instances in the United States, especially within the services sector. However, when the value‐added trade concept is applied, the paradox is observed only in a few bilateral cases in the services sector. By contrast, the Leontief paradox is almost nonexistent in India, as a developing country with an abundant labor endowment, whether from a conventional trade perspective or a value‐added trade one is used.