Working Paper: NBER ID: w21176
Authors: David Atkin; Benjamin Faber; Marco Gonzalez-Navarro
Abstract: The arrival of global retail chains in developing countries is causing a radical transformation in the way that households source their consumption. This paper draws on a new collection of Mexican microdata to estimate the effect of foreign supermarket entry on household welfare. The richness of the microdata allows us to estimate a general expression for the gains from retail FDI, and to decompose these gains into several distinct channels. We find that foreign retail entry causes large and significant welfare gains for the average household that are mainly driven by a reduction in the cost of living. About one quarter of this price index effect is due to pro-competitive effects on the prices charged by domestic stores, with the remaining three quarters due to the direct consumer gains from shopping at the new foreign stores. In contrast, we find little evidence of significant changes in average municipality-level incomes or employment. We do, however, find evidence of store exit, adverse effects on domestic store profits and reductions in the incomes of traditional retail sector workers. We also show that the gains from retail FDI are on average positive for all income groups but regressive, and quantify the opposing forces that underlie this finding. Finally, we find that the estimated gains are specific to foreign entry, rather than being driven by the entry of modern store formats more generally.
Keywords: retail globalization; household welfare; foreign direct investment
JEL Codes: F15; F23; F63; O24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign retail entry (F23) | household welfare (I38) |
| foreign retail entry (F23) | reduction in the cost of living (D61) |
| foreign retail entry (F23) | procompetitive effects on domestic store prices (L11) |
| foreign retail entry (F23) | direct consumer gains from shopping at foreign stores (F61) |
| foreign retailers (L81) | lower prices for identical products (L11) |
| foreign retailers (L81) | wider variety of products (L15) |
| foreign retail entry (F23) | regressive welfare gains (D69) |
| foreign retail entry (F23) | adverse effects on traditional retail workers' incomes (F66) |
| foreign retail entry (F23) | adverse effects on domestic store profits (F61) |