Productivity Dynamics in the Retail Trade Sector: The Roles of Large Modern Retailers and Small Entrants

The massive reallocation and restructuring triggered by the growth of large modern retailers (LMRs) have improved retail productivity worldwide. Using establishment-level census data, we examine the roles of LMRs and small stores in reallocation and productivity growth in the Korean retail trade sector. We find that retail sector productivity growth is accounted for mostly by the entry of small, productive stores. These small stores are more likely to enter counties with LMRs. Moreover, we find that the entrants in LMR counties are more productive than those elsewhere. Our finding of a complementary relationship between small and large stores contrasts with the evidence from developed countries, where retail productivity growth is explained predominantly by more productive, large entrants such as Wal-Mart displacing less productive incumbents.