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.

RELATED TERMS
  1. Input-Output Analysis

    Input-output analysis refers to the study of the particular effects ...
  2. Heckscher-Ohlin Model

    The Heckscher-Ohlin Model is an economic theory stating countries ...
  3. Net Exporter

    A net exporter is a country or territory whose value of exported ...
  4. Terms of Trade - TOT

    Terms of trade represent the ratio between a country's export ...
  5. Paul Samuelson

    Paul Samuelson was an economics professor at MIT who received ...
  6. Edmund S. Phelps

    Edmund Phelps is an American professor of political economy at ...
Related Articles
  1. Insights

    Harvard and MIT Professors Win Nobel Memorial Prize in Economics

    British economist Oliver Hart, 68, and Finnish economist Bengt Holmström, 67, were honored with the award today for their contributions to contract theory.
  2. Investing

    What's the Balance of Trade?

    The balance of trade is the difference between the value of all the goods and services a country exports and the goods and services it imports.
  3. Investing

    How 5 Influential Economists Changed Americas History

    Find out how five economists made contributions to financial theory that crossed over into many aspects of social history in America such as Adam Smith.
  4. Insights

    Interesting Facts About Imports and Exports

    Learn how imports and exports exert a profound influence on the consumer and the economy.
  5. Trading

    Main Factors that Influence Exchange Rates

    The exchange rate is one of the most important determinants of a country's relative level of economic health and can impact your returns.
  6. Trading

    6 factors that influence exchange rates

    Aside from interest rates and inflation, the exchange rate is one of the most important determinants of a country's level of economic health.
  7. Insights

    The Biggest Losers From China's Slowdown

    A look at how China's slowdown is impacting countries around the world.
  8. Investing

    Seven Controversial Investing Theories

    Find out information about seven controversial investing theories that attempt to explain and influence the market as well as the actions of investors.
  9. Investing

    What Are the Top U.S. Exports?

    As worries of a trade war escalate, take a closer look at the United States' top exports in 2017.
RELATED FAQS
  1. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange ... Read Answer >>
  2. Is it possible for a country to have a comparative advantage in everything?

    Learn whether one country can have a comparative advantage in everything and what the difference between comparative advantage ... Read Answer >>
  3. How did the Soviet economic system affect consumer goods?

    Discover how the now-defunct Soviet economic system affected domestic consumer goods markets. Communist ideology dictated ... Read Answer >>
  4. What is comparative advantage?

    Learn about comparative advantage, and how it is an economic law that is foundation for free-trade arguments. Read Answer >>
  5. Has the Efficient Market Hypothesis been proven correct or incorrect?

    Explore the efficient market hypothesis and understand the extent to which this theory and its conclusions are correct or ... Read Answer >>
Trading Center