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The Comparative Advantage of Firms

Author

Listed:
  • Johannes Boehm

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science)

  • Swati Dhingra

    (CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science, CEPR - Center for Economic Policy Research)

  • John Morrow

    (King‘s College London, CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science, CEPR - Center for Economic Policy Research)

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.

Suggested Citation

  • Johannes Boehm & Swati Dhingra & John Morrow, 2021. "The Comparative Advantage of Firms," Post-Print hal-03877257, HAL.
    • Handle: RePEc:hal:journl:hal-03877257
    DOI: 10.1086/720630
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03877257v1
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    2. Chor, Davin & Manova, Kalina & Yu, Zhihong, 2021. "Growing like China: Firm performance and global production line position," Journal of International Economics, Elsevier, vol. 130(C).
    3. Hötte, Kerstin, 2023. "Demand-pull, technology-push, and the direction of technological change," Research Policy, Elsevier, vol. 52(5).
    4. Yasutaka Koike-Mori & Antonio Martner, 2024. "Aggregating Distortions in Networks with Multi-Product Firms," Working Papers Central Bank of Chile 1022, Central Bank of Chile.
    5. World Bank, 2023. "Manufacturing Firm Diversification into Industry 4.0 Technologies," World Bank Publications - Reports 40246, The World Bank Group.
    6. Luca Macedoni & Rui Zhang & Frederic Warzynski, 2024. "Fight or Flight? How Do Firms Adapt Their Product Mix in Response to Demand and Competition," CESifo Working Paper Series 11144, CESifo.
    7. Bas, Maria & Fernandes, Ana & Paunov, Caroline, 2024. "How resilient was trade to COVID-19?," Economics Letters, Elsevier, vol. 240(C).
    8. Victor Ushahemba IJIRSHAR & Isa Jibrin OKPE & Jerome Terhemba ANDOHOL & Philip Terhemen ABACHI & Solomon GBAKA, 2024. "Revolutionising Trade: Exploring how Innovation in Selected African Countries Shapes Economic Relations with Key Regions," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 5(5), pages 51-70, May.
    9. Ina C. Jäkel, 2021. "Export Credit Guarantees: Direct Effects on the Treated and Spillovers to their Suppliers," Economics Working Papers 2021-09, Department of Economics and Business Economics, Aarhus University.
    10. Gimenez-Perales, Victor & Mulyukova, Alina, 2026. "Welfare effects of industrial policies: Theory and evidence from India's de-reservation policy," Kiel Working Papers 2299, Kiel Institute for the World Economy, revised 2026.
    11. Lu, Dan & Mariscal, Asier & Mejía, Luis-Fernando, 2024. "How firms accumulate inputs: Evidence from import switching," Journal of International Economics, Elsevier, vol. 148(C).
    12. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    13. Mulyukova, Alina, 2025. "Services liberalization and product variety of manufacturing firms," Kiel Working Papers 2294, Kiel Institute for the World Economy.
    14. Frank Neffke & Angelica Sbardella & Ulrich Schetter & Andrea Tacchella, 2024. "Economic Complexity Analysis," Papers in Evolutionary Economic Geography (PEEG) 2430, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Oct 2024.
    15. Chris Muris & Cavit Pakel, 2025. "Triadic Network Formation," Papers 2509.26420, arXiv.org.
    16. Curuk, Malik & Rozendaal, Rik & Wendler, Tobias, 2025. "Gender differences in the employment effects of climate policy," Energy Economics, Elsevier, vol. 145(C).
    17. Chen, Fengwen & Wang, Bing & Wang, Wei & Hu, Chen, 2024. "The secret of imitating wrongdoing: Accidental or deliberate," Research in International Business and Finance, Elsevier, vol. 69(C).
    18. von Graevenitz, Kathrine & Krug, Joscha & Rottner, Elisa, 2025. "Rising energy prices without falling consumption? The role of energy price dispersion in a multi-product world," ZEW Discussion Papers 25-047, ZEW - Leibniz Centre for European Economic Research.
    19. Ali, Nesma & Stiebale, Joel, 2021. "Foreign direct investment, prices and efficiency: Evidence from India," DICE Discussion Papers 363, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    20. Hang Zheng & Jian Han & Yiqun Liu, 2024. "Authorized economic operator certification and export stability: Evidence from China's firms," Review of International Economics, Wiley Blackwell, vol. 32(3), pages 1174-1203, August.

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    Keywords

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    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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