NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Retail Globalization and Household Welfare: Evidence from Mexico

David Atkin, Benjamin Faber, Marco Gonzalez-Navarro

NBER Working Paper No. 21176
Issued in May 2015
NBER Program(s):   DEV   ITI

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. In contrast, 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. We also 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. Finally, we find that the estimated gains are specific to foreign entry, rather than being driven by the entry of modern store formats more generally.

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This paper was revised on January 26, 2016

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21176

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