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.

---

1 December 2022

---

Journal of Political Economy 130(12) 2022

---

DOI: 10.1086/720630

https://www.journals.uchicago.edu/doi/10.1086/720630

This Journal article is published under the centre's Trade programme.

This publication comes under the following theme: Global firms