Discussion Paper Details

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Title: Retail Globalization and Household Welfare: Evidence from Mexico

Author(s): David Atkin, Benjamin Faber and Marco Gonzalez-Navarro

Publication Date: May 2015

Keyword(s): foreign direct investment, gains from trade and Supermarket revolution

Programme Area(s): Development Economics and International Trade and Regional Economics

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.

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Bibliographic Reference

Atkin, D, Faber, B and Gonzalez-Navarro, M. 2015. 'Retail Globalization and Household Welfare: Evidence from Mexico'. London, Centre for Economic Policy Research.