Retail Globalization and Household Welfare: Evidence from Mexico

60 Pages Posted: 19 May 2015

See all articles by David Atkin

David Atkin

Massachusetts Institute of Technology (MIT) - Department of Economics

Benjamin Faber

University of California, Berkeley - Department of Economics

Marco Gonzalez-Navarro

affiliation not provided to SSRN; Associate professor

Multiple version iconThere are 2 versions of this paper

Date Written: May 2015

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.

Keywords: foreign direct investment, gains from trade, Supermarket revolution

JEL Classification: F15, F23, F63, O24

Suggested Citation

Atkin, David G. and Faber, Benjamin and Gonzalez-Navarro, Marco and Gonzalez-Navarro, Marco, Retail Globalization and Household Welfare: Evidence from Mexico (May 2015). CEPR Discussion Paper No. DP10593, Available at SSRN: https://ssrn.com/abstract=2608051

David G. Atkin (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Benjamin Faber

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Marco Gonzalez-Navarro

affiliation not provided to SSRN

Associate professor ( email )

Berkeley, CA 94720
United States

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