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

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Abstract

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, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. This mechanism can explain why a surge in U.S. imports followed relatively modest tariff declines and why Wal-Mart abandoned its Buy American campaign in the 1990s. Also consistent with these facts, we show that tariff reductions have a greater effect the more advanced the retailers technology. The model has implications for the pace of the product cycle and sheds light on the recent apparent acceleration in foreign outsourcing.

Suggested Citation

  • Emek Basker & Pham Hoang Van, 2005. "Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade," Working Papers 0506, Department of Economics, University of Missouri, revised 07 Oct 2005.
  • Handle: RePEc:umc:wpaper:0506
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    File URL: https://economics.missouri.edu/working-papers/2005/wp0506_basker_pham.pdf
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    Cited by:

    1. Kosová, Renáta & Lafontaine, Francine, 2012. "Much ado about chains: A research agenda," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 303-308.

    More about this item

    Keywords

    Wal-Mart; Trade; Economies of Scale; China; Technological Change; Retail Chain;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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