Working Paper: CEPR ID: DP7140
Authors: Jonathan Haskel; Raffaella Sadun
Abstract: We use UK micro data to explore whether planning regulation reduced UK retailing productivity growth between 1997 and 2003. We document a shift to smaller shops, particularly within supermarket chains, following a regulatory change in 1996 which increased the costs of opening large stores. This might have caused a slowdown in productivity growth if firms (a) lose scale advantages, by moving to smaller stores and (b) lose scope advantages if existing organisational knowledge appropriate to larger stores is not perfectly substitutable with the organisational capital required to run smaller stores. Our micro data shows a relation, controlling for fixed effects, between chain-level TFP for multi-store chains and various measures of the size of the stores within the chain. Our results suggest the fall in within-chain shop sizes was associated with a lowering of chain TFP by about 0.4% pa, about 40% of the post-1995 slowdown in UK retail TFP growth. The foregone productivity works out at about £80,000 per small chain supermarket store.
Keywords: productivity; regulation; retail
JEL Codes: D24; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory change in 1996 (K23) | Shift towards smaller store formats (L81) |
| Shift towards smaller store formats (L81) | Decrease in total factor productivity (TFP) growth (O49) |
| Regulatory change in 1996 (K23) | Decrease in total factor productivity (TFP) growth (O49) |
| Loss of scale advantages (F12) | Decrease in total factor productivity (TFP) growth (O49) |
| Loss of scope advantages (L25) | Decrease in total factor productivity (TFP) growth (O49) |