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Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade

Retail chains and imports from developing countries have grown sharply over the past 25 years. Wal-Marts chain, which currently accounts for 10% of U.S.imports from China, grew 10-fold and its sales 90-fold over this period, whileU.S. imports from China increased 30-fold. We relate these trends using a modelin which scale economies in retail interact with scale economies in the importprocess. Combined, these scale economies amplify the effects of technologicalchange and trade liberalization. Falling trade barriers increase imports not onlythrough direct reduction of input costs but also through an expanded chain andhigher investment in technology. This mechanism can explain why a surge in U.S.imports followed relatively modest tariff declines and why Wal-Mart abandonedits Buy American campaign in the 1990s. Also consistent with these facts, weshow that tariff reductions have a greater effect the more advanced the retailerstechnology. The model has implications for the pace of the product cycle andsheds light on the recent apparent acceleration in foreign outsourcing.

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File URL: http://economics.missouri.edu/working-papers/2005/wp0506_basker_pham.pdf
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Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 0506.

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Length: 53 pgs.
Date of creation: 20 Jul 2005
Date of revision: 07 Oct 2005
Handle: RePEc:umc:wpaper:0506
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  1. Deborah L. Swenson, 2004. "Overseas Assembly and Country Sourcing Choices," NBER Working Papers 10697, National Bureau of Economic Research, Inc.
  2. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
  3. Lucia Foster & John Haltiwanger & C.J. Krizan, 2002. "The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade," NBER Working Papers 9120, National Bureau of Economic Research, Inc.
  4. John Romalis, 2007. "Market Access, Openness and Growth," NBER Working Papers 13048, National Bureau of Economic Research, Inc.
  5. J. Bradford Jensen & Andrew Bernard & Peter Schott, 2005. "Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods," Working Papers 05-20, Center for Economic Studies, U.S. Census Bureau.
  6. Emek Basker, 2002. "Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion Abstract: This paper estimates the effect of Wal-Mart expansion on retail employmentat the county level. Using an instrumental-v," Working Papers 0215, Department of Economics, University of Missouri, revised Jan 2004.
  7. Mauricio Mesquita Moreira, 2004. "Fear of China: Is there a future for manufacturing in Latin America?," Development and Comp Systems 0412008, EconWPA.
  8. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc.
  9. Mark E. Doms & Ron S. Jarmin & Shawn D. Klimek, 2003. "IT investment and firm performance in U.S. retail trade," Working Paper Series 2003-19, Federal Reserve Bank of San Francisco.
  10. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  11. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
  12. Jerry Hausman & Ephraim Leibtag, 2004. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Working Papers 10712, National Bureau of Economic Research, Inc.
  13. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  14. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 137-152, March.
  15. Petya Koeva Brooks, 2000. "The Facts About Time: To-Build," IMF Working Papers 00/138, International Monetary Fund.
  16. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  17. Holmes, Thomas J, 2001. "Bar Codes Lead to Frequent Deliveries and Superstores," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 708-25, Winter.
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