The comparative advantage of firms
Boehm, J., Dhingra, S.
& Morrow, J.
(2019).
The comparative advantage of firms.
(CEP Discussion Papers 1614).
London School of Economics and Political Science. Centre for Economic Performance.
& Morrow, J.
(2019).
The comparative advantage of firms.
(CEP Discussion Papers 1614).
London School of Economics and Political Science. Centre for Economic Performance.
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.