Intangible Economies of Scope: Micro Evidence and Macro Implications
(Updated Dec 24, 2019)
Do economies of scope within firms transmit macro shocks across industries? I exploit exogenous variation in foreign demand faced by US multi-industry manufacturers to identify this mechanism. I find that a positive demand shock in one industry of a firm increases its sales in another only when both industries use the same intangible inputs. I develop a general equilibrium model of multi-industry firms and estimate that scope economies are driven by the scalability and non-rivalry of intangible inputs under joint production. Cross-industry spillovers due to scope economies account for 20 percent of the equilibrium response of productivity to market size. Applied to US trade, the model predicts large productivity spillovers from industry shocks, particularly across industries that use more intangible inputs.