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Retail Globalization and Household Welfare: Evidence from Mexico

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  • 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. 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. Finally, we 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.

Suggested Citation

  • David Atkin & Benjamin Faber & Marco Gonzalez-Navarro, 2015. "Retail Globalization and Household Welfare: Evidence from Mexico," CEP Discussion Papers dp1351, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1351
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    Cited by:

    1. Benjamin Faber & Cecile Gaubert, 2016. "Tourism and Economic Development: Evidence from Mexico's Coastline," NBER Working Papers 22300, National Bureau of Economic Research, Inc.
    2. Stephen J. Redding & David E. Weinstein, 2017. "Aggregating from Micro to Macro Patterns of Trade," NBER Working Papers 24051, National Bureau of Economic Research, Inc.
    3. Prottoy A. Akbar & Victor Couture & Gilles Duranton & Adam Storeygard, 2018. "Mobility and Congestion in Urban India," NBER Working Papers 25218, National Bureau of Economic Research, Inc.
    4. Florence Kondylis & Mattea Stein, 2018. "The Speed of Justice," PSE Working Papers halshs-01735025, HAL.
    5. Javier Cravino & Andrei A. Levchenko, 2017. "The Distributional Consequences of Large Devaluations," American Economic Review, American Economic Association, vol. 107(11), pages 3477-3509, November.
    6. Macchiavello, Rocco & Miquel-Florensa, Josepa, 2017. "Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain," CEPR Discussion Papers 11874, C.E.P.R. Discussion Papers.
    7. Meinen, Philipp & Raff, Horst, 2018. "International trade and retail market performance and structure: Theory and empirical evidence," Journal of International Economics, Elsevier, vol. 115(C), pages 99-114.
    8. Thibault Fally & Benjamin Faber, 2016. "Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data," 2016 Meeting Papers 381, Society for Economic Dynamics.
    9. Colin J. Hottman & Ryan Monarch, 2018. "Estimating Unequal Gains across U.S. Consumers with Supplier Trade Data," Working Papers 18-04, Center for Economic Studies, U.S. Census Bureau.
    10. Andrei Matveenko, 2017. "Logit, CES, and Rational Inattention," CERGE-EI Working Papers wp593, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. repec:eee:inecon:v:114:y:2018:i:c:p:203-220 is not listed on IDEAS
    12. Macchiavello, Rocco & Miquel-Florensa, Josepa, 2017. "Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain," CAGE Online Working Paper Series 321, Competitive Advantage in the Global Economy (CAGE).
    13. repec:eee:wdevel:v:112:y:2018:i:c:p:259-271 is not listed on IDEAS
    14. Amiti, Mary & Dai, Mi & Feenstra, Robert & Romalis, John, 2017. "How Did China's WTO Entry Benefit U.S. Consumers?," CEPR Discussion Papers 12076, C.E.P.R. Discussion Papers.
    15. Rodriguez Castelan,Carlos, 2015. "The poverty effects of market concentration," Policy Research Working Paper Series 7515, The World Bank.
    16. Hunt Allcott & Rebecca Diamond & Jean-Pierre Dubé & Jessie Handbury & Ilya Rahkovsky & Molly Schnell, 2017. "Food Deserts and the Causes of Nutritional Inequality," NBER Working Papers 24094, National Bureau of Economic Research, Inc.
    17. Mary Amiti & Mi Dai & Robert C. Feenstra & John Romalis, 2017. "How Did China’s WTO Entry Affect U.S. Prices?," NBER Working Papers 23487, National Bureau of Economic Research, Inc.
    18. Victor Couture & Benjamin Faber & Yizhen Gu & Lizhi Liu, 2018. "E-Commerce Integration and Economic Development: Evidence from China," NBER Working Papers 24384, National Bureau of Economic Research, Inc.
    19. Amiti, Mary & Dai, Mi & Feenstra, Robert C. & Romalis, John, 2017. "How did China’s WTO entry benefit U.S. prices?," Staff Reports 817, Federal Reserve Bank of New York, revised 01 Jul 2018.
    20. Faber, Benjamin & Gaubert, Cécile, 2018. "Tourism and Economic Development: Evidence from Mexico's Coastline," CEPR Discussion Papers 12644, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Supermarket revolution; foreign direct investment; gains from trade;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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