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The comparative advantage of firms

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  • Boehm, Johannes
  • Dhingra, Swati
  • Morrow, John

Abstract

Resource based theories propose that firms grow by diversifying into products which 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 industry's input mix determine firm production choices. We model industry choice and economies of scope from input capabilities. Estimating the model 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 co-production rates. Upstream entry barriers were equivalent to a 9.5% tariff on inputs.

Suggested Citation

  • Boehm, Johannes & Dhingra, Swati & Morrow, John, 2019. "The comparative advantage of firms," LSE Research Online Documents on Economics 102596, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:102596
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    7. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    multiproduct firms; firm capabilities; vertical input linkages; comparative advantage; economies of scope; size-based policies;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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