This paper incorporates sloping marginal cost curves and their variations across industries into an open macro model, motivated by the fact that industries’ output, imports, and exports are more procyclical when their economies of scale arise from sloping marginal cost curves rather than fixed costs. The model, consistent with the data, delivers endogenous within-firm interdependence across markets and export gains/losses, which reproduce observed industrial business cycle patterns as well as more correlated aggregate business cycles across countries. The findings highlight the importance of marginal cost structures in international business cycle research. •In US manufacturing industries, heterogeneous economies of scale mainly arise from non-constant marginal costs rather than fixed costs.•Output, exports, and imports are more procyclical in industries with decreasing marginal costs.•An open macro model with different slopes of the marginal cost curves well reproduces the industrial and aggregate international business cycle patterns.