ABSTRACT
The Leontief paradox generated several responses among trade economists. We have examined above the statistical arguments and the minor modifications to Heckscher-Ohlin. We now consider the most constructive response - the development of new theories. These primarily hinge around technology, and are treated in section 5.1. Section 5.2 considers how economies of scale and the degree of monopoly influence trade patterns, and section 5.3 develops them further into theories of differentiated trade. These sections explain the phenomenon of ‘intra-industry’ trade - the simultaneous import and export of the same good - which is quite beyond traditional theory.
