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Do multinational retailers affect the export competitveness of host countries?

The accelerated overseas expansion of multinational retailers (MRs) over the last decade transformed these companies into major regional and global actors. In this paper we question how MRs arriving in foreign markets affect the export performance of local firms. We develop a theoretical framework that explains the mechanisms by which multinational retailers establishing outlets abroad impact the export performance of local firms and test its predictions empirically for the agri-food sector. The adopted approach draws on recent empirical evidence of the effects of foreign direct investment (FDI) in the retail sector and recent developments in the literature on international trade with heterogeneous firms and on trade and intermediaries. First, incoming multinational retailers may increase the overall export capacity of local firms to any foreign market via an increase in their productivity. The growing competitive pressure in the upstream sector, induced by global retail chains, drives least productive firms out of the market and the average productivity of the sector increases. In addition, retail sector FDI generates productivity gains at the firm level: local suppliers of multinational retailers benefit from the retailers’ financial and technological support and become more productive in time. Thus, although the productivity threshold for exporting remains unchanged, some firms reach this threshold and start exporting, while firms above this threshold that experience productivity gains increase their volume of exports. Second, we consider the role of multinational retailers in matching foreign sellers and buyers. With their wide transnational networks of outlets and contacts, multinational retailers can become natural intermediaries between suppliers and consumers in countries where they operate. The local suppliers of a foreign retailer may sell more easily their products in retailer’s outlets situated in other countries, or, with the retailer’s help, identify at a lower cost potential buyers in these markets. Lower export sunk costs for retailer’s supplying firms determines the latter to export larger amounts to destination markets served by this retailer. For other destination markets these suppliers face the same export costs as other host country firms. These effects were first discussed empirically by Head, Jing and Swenson (2010), but only from an empirical point of view. They find evidence of the capability effect, but not for the linkage effect for the exports of Chinese cities. Unlike Head et al. (2010), we use a large panel of countries and data on the world’s top one hundred food retailers. We find evidence of both capability and linkage effects, but the latter does not apply to a country’s exports to the origin country of the foreign retailers it hosts.

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File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_106.pdf
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Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 106.

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Length: 32 pages
Date of creation: Jun 2014
Date of revision:
Handle: RePEc:iaw:iawdip:106
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  1. James E. Rauch & Joel Watson, 2004. "Network Intermediaries in International Trade," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 69-93, 03.
  2. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  3. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  4. Thomas Reardon & Spencer Henson & Julio Berdegué, 2007. "'Proactive fast-tracking' diffusion of supermarkets in developing countries: implications for market institutions and trade," Journal of Economic Geography, Oxford University Press, vol. 7(4), pages 399-431, July.
  5. Javorcik, Beata & Keller, Wolfgang & Tybout, James R, 2006. "Openness and Industrial Response in a Wal-Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers," CEPR Discussion Papers 5823, C.E.P.R. Discussion Papers.
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  7. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  8. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  9. Thomas Reardon & C. Peter Timmer & Christopher B. Barrett & Julio Berdegué, 2003. "The Rise of Supermarkets in Africa, Asia, and Latin America," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1140-1146.
  10. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
  11. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis.
  12. Angela Cheptea & Charlotte Emlinger & Karine Latouche, 2012. "Multinational Retailers and Home Country Exports," Working Papers 2012-34, CEPII research center.
  13. Shang-Jin Wei & Jaebin Ahn & Amit K. Khandelwal, 2010. "The Role of Intermediaries in Facilitating Trade," Working Papers id:2557, eSocialSciences.
  14. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 985-985.
  15. Keith Head & Ran Jing & Deborah L. Swenson, 2010. "From Beijing to Bentonville: Do Multinational Retailers Link Markets?," NBER Working Papers 16288, National Bureau of Economic Research, Inc.
  16. Leonardo Iacovone & Beata Smarzynska Javorcik & Wolfgang Keller & James R. Tybout, 2011. "Supplier Responses to Wal-Mart's Invasion of Mexico," NBER Working Papers 17204, National Bureau of Economic Research, Inc.
  17. Bernardo S. Blum & Sebastian Claro & Ignatius Horstmann, 2010. "Facts and Figures on Intermediated Trade," American Economic Review, American Economic Association, vol. 100(2), pages 419-23, May.
  18. Hildegunn Kyvik Nordås & Massimo Geloso Grosso & Enrico Pinali, 2008. "Market Structure in the Distribution Sector and Merchandise Trade," OECD Trade Policy Papers 68, OECD Publishing.
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