We study the consequences of heterogeneity in factor intensity on firm performance. We present a standard Heckscher–Ohlin model augmented with factor intensity differences across firms within a country–industry pair. We show that for any two firms, each of whose capital intensity is, for instance, one percent above (below) its respective country–industry average, the relative marginal cost of the firm in the capital-intensive industry of the capital-abundant country is lower (higher) than that of the other firm. Our empirical analysis, conducted using data for a large panel of European firms, supports this prediction. These results provide a novel approach to the verification of the Heckscher–Ohlin theory and new evidence on its validity.
Bibliographical noteThis paper has previously circulated under the title “Comparative Advantage and
Within-Industry Firms Performance” and published as CEPII Working Paper, (2011-01). France: CEPII. Retrieved from http://www.cepii.fr/PDF_PUB/wp/2011/wp2011-01.pdf
- Factor intensity
- Firm heterogeneity
- Test of trade theories