Who was Wassily Leontief

Wassily Leontief was a Nobel Prize-winning Russian-American economist and professor, known for his research on input-output analysis, which shows how changes in one sector of the economy can affect other sectors.

BREAKING DOWN Wassily Leontief

Wassily Leontief’s research into input-output analysis, which won him the Nobel Memorial Prize in Economics in 1973, has been used by the World Bank, the United Nations and the U.S. Department of Commerce, to estimate the impacts of positive and negative economic shocks, and analyze ripple effects throughout an economy. Using input-output tables, one can estimate the impact that a change in production of a good will have on other industries and their inputs – and establish just how interdependent economic sectors are.

Leontief campaigned all his life for the use of quantitative data in the study of economics. He taught at Harvard for 44 years and then New York University. Four of his doctoral students have also been awarded the prize: Paul Samuelson (1970), Robert Solow (1987), Vernon L. Smith (2002) and Thomas Schelling (2005). Leontief died in New York in 1999.

Contribution to Trade Theory

When Leontief used input-output analysis to study trade flows between the U.S. and other countries, he discovered that countries with a great deal of capital import capital-intensive commodities and export labor-intensive commodities. According to economic theory, countries should export according to their comparative advantage — that is, capital-intensive countries should import labor-intensive goods and export capital-intensive goods.

The Leontief paradox, as it came to be known, led many economists to question the Heckscher-Ohlin theorem, according to which countries produce and export what they can most efficiently – depending on their factors of production — and import goods that they cannot produce as efficiently. A variety of other models have been used to explain why industrialized and developed countries traditionally lean toward trading with one another and rely less heavily on trade with developing markets.

The Linder hypothesis attempts to address problems with the Heckscher-Olin theory, by suggesting that countries will specialize in the production of certain high quality goods, and will trade these goods with countries that demand these goods.