Retail Globalization and Household Welfare: Evidence from Mexico

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.

Measuring competition in spatial retail

“…Consumers, particularly less affluent ones and almost exclusively those with cars, are willing to travel significantly farther to shop at club stores rather than traditional supermarkets. This accords with the empirical analysis of Lagakos (2016), who finds that car ownership alone explains roughly two thirds of the cross‐country differences in the relative use of modern (and far more efficient) big‐box retail technologies, and provides further evidence that the benefits of these innovations may be regressive (Lagakos, 2016; Atkin, Faber, and Gonzalez‐Navarro, 2018; Eizenberg, Lach, and Yiftach, 2016), perhaps even leaving some transportation‐constrained consumers un‐served. The greater spatial reach enjoyed by club stores also has direct implications for merger policy.…”

Tourism and Economic Development: Evidence from Mexico’s Coastline

“…This paper relates and contributes to the recent literature on trade and development (e.g., Topalova 2010;Donaldson 2018;Atkin, Faber, and Gonzalez-Navarro 2018). Relative to the existing literature, we focus on tourism, an important and fast-growing but so far understudied facet of globalization in developing countries.…”

The Distributional Consequences of Large Devaluations

“…Appendix C.2 provides some direct evidence to support this claim based on an alternative data source, the Economist Intelligence Unit 34 CityData. 21 A recent paper by Atkin et al (2016) uses a rich collection of barcode, store, and household-level data in Mexico over 2011-2014 to show that (i) products with identical barcodes are 12% cheaper in foreign-owned stores compared to domestically-owned stores; and (ii) higher-income households spend a higher fraction of their retail expenditure in foreign stores. How are these observations reconciled with the evidence in Table A1 that the poor pay lower prices within product categories?…”

“…Since richer households tend to buy higher-quality varieties, this is consistent with the observation that higherpriced varieties are consumed by the high-income households. Second, even for identical (barcode-level) products the analysis in Atkin et al (2016) does not establish that the poor actually pay more than the rich. Their estimated coefficient reflects the average price difference between all foreign-and non-foreign-owned stores.…”

“…Our paper is also related to a large and growing literature in international trade that models demand non-homotheticities and examines the distributional impact of economic integration across consumers (see, e.g. Fajgelbaum et al, 2011;Fajgelbaum and Khandelwal, 2016;Atkin et al, 2016). The closest to ours are papers by Porto (2006) and Faber 5 See Encuesta Nacional de Ingresos y Gastos de los Hogares (ENIGH), Síntesis histórica, 1992Síntesis histórica, -2008 Changes in asset values/incomes are more difficult to ascertain, but available evidence suggests that assets of the poor suffered larger losses than those of the rich.…”