The Comparative Advantage of Firms

Johannes Boehm (1, 2) , Swati Dhingra (2, 3) , John Morrow (4, 2, 3)

1 ECON - Département d'économie (Sciences Po)
2 CEP - LSE - Centre for Economic Performance
3 CEPR - Center for Economic Policy Research
4 King‘s College London

Resource-based theories propose that firms grow by diversifying into products that use common capabilities. We provide evidence for common-input capabilities, using a policy that removed entry barriers in input markets to show that the similarity of a firm’s and an industry’s input mix determines firm production choices. We model industry choice and economies of scope from input capabilities. When the model is estimated for Indian manufacturing, input complementarities make firms 5% more likely to produce in an industry and are quantitatively as important as time-invariant drivers of coproduction rates. Upstream entry barriers were equivalent to a 9.5% tariff on inputs.

Mots clés: Multiproduct firms; firm capabilities; vertical input linkages; comparative advantage; economies of scope; size-based policies

Domaines: Economies et finances

Johannes Boehm, Swati Dhingra, John Morrow. The Comparative Advantage of Firms. Journal of Political Economy, 2021, 130 (12), ⟨10.1086/720630⟩. ⟨hal-03877257⟩