Comparative Advantage and Within-Industry Firms Performance

Guided by empirical evidence we consider firms heterogeneity in terms of factor intensity. We show that Heckscher-Ohlin comparative advantage and firm-level relative factor-intensity interact to jointly explain the observed differences in relative sales. Firms whose rela- tive factor-intensity matches up with the comparative advantage of the country have lower relative marginal costs and larger relative sales than firms who do not. Our empirical analysis, conducted us- ing data for a large panel of European firms, supports these predic- tions. Our findings also provide an original firm-level verification of the Heckscher-Ohlin model based on the effect of comparative advantage on firms relative sales.