Date Added: Dec 2010
Guided by empirical evidence the authors consider firms heterogeneity in terms of factor intensity. They show that Heckscher-Ohlin comparative advantage and firm-level relative factor-intensity interact to jointly explain the observed differences in relative sales. Firms whose relative 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. This empirical analysis, conducted using data for a large panel of European firms, supports these predictions. These findings also provide an original firm-level verification of the Heckscher-Ohlin model based on the effect of comparative advantage on firms relative sales.