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Journal of Political Economy Vol. 130 No. 12 2022

The Comparative Advantage of Firms

Johannes Boehm1,2,3,4; Swati Dhingra2,3,4; John Morrow5,2,4

1 Institut d'Etudes Politiques de Paris · 2 Centre for Economic Policy Research · 3 Economic Research Centre · 4 London School of Economics and Political Science · 5 King's College London

open access

Abstract

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.

DOI
10.1086/720630
Volume
130
Issue
12
Pages
3025-3100
Language
en
Sources
crossref openalex bibtex:phds-export.bib

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