Top

The Annals of Regional Science

Published in:

07-02-2022 | Original Paper

How does big-box retail entry affect labor productivity in durable goods retailing? A synthetic control approach

Authors: Niklas Rudholm, Yujiao Li, Kenneth Carling

Published in: The Annals of Regional Science | Issue 1/2022

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

Using data from 2001 to 2012, the effects of IKEA entry in four Swedish municipalities, 2004–2007, on labor productivity in durable goods retailing is investigated using synthetic control methods. We contribute to the literature on synthetic control methods by considering parametric specifications of the intervention effect, which improves the likelihood of identifying the effect of IKEA entry on labor productivity. Our results indicate that in three out of four entry municipalities, labor productivity increased more than in their synthetic counterparts after IKEA entry, and that larger positive effects are found in rural municipalities where the new IKEA was large relative to the existing durable goods retail market.

previous article Household asset dynamics and shocks: an empirical assessment of asset-based poverty traps in Peru

next article (Green) Knowledge spillovers and regional environmental support: do they matter for the entry of new green tech-based firms?

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Technik"

Online-Abonnement

Mit Springer Professional "Technik" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 390 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Maschinenbau + Werkstoffe

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

Since we suggest new methods for statistical inference when using the SCM, we have also made a web-app where the SCM, including the methods for inference suggested in this paper, is readily available for any researcher that wants to employ these methods. For the purpose of replication, the dataset used in this paper is uploaded as the default in the app. By following the instructions in the manual for the app, the results for Haparanda are replicated, and the app can also be used to test the sensitivity of our results by making changes to the baseline model. The web-app can be accessed through https://wishes.shinyapps.io/intervention_effect_study/.

This might seem like a large increase, but for the average Swedish municipality 17% equals about 250 new jobs in durable goods retailing, which is about the number that a new IKEA store usually employs.

As mentioned in the introduction, Daunfeldt et al. (2017) and Han et al. (2018) have shown that the impact of IKEA entry in Sweden is limited to the entry municipalities themselves, and as such we do not directly exclude adjacent municipalities from the donor pool. There are two municipalities used in the creation of the synthetic controls that are adjacent to any of the entry municipalities, Kungsbacka (adjacent to Gothenburg, used in the synthetic control for the entry in Karlstad in 2007) and Storfors (adjacent to Karlstad, used in the synthetic control for the entry in Gothenburg in 2004). However, in both cases the weight of these municipalities in the contribution to the synthetic control unit is below 0.1, and as such they will only have a minor impact on the synthetic control unit created.

Although the use of municipality level data makes it impossible to directly identify if an increase in labor productivity arises as direct or indirect effects (cf Sect. 3), we discuss further our results in conjunction to previous studies in Sect. 6, along with some suggestions for future research that would be possible subject to access to firm level data.

Such firm level data can for example be found in the Serrano database. See the Swedish House of Finance, https://support.data.houseoffinance.se for more information.

Abadie A, Gardeazabal J (2003) The economics of conflict: a case study of the Basque Country. Am Econ Rev 93:113–132CrossRef

Abadie A, Diamond A, Hainmueller J (2010) Synthetic control methods for comparative case studies: estimating the effect of California’s tobacco control program. J Am Stat Assoc 105:493–505CrossRef

Abadie A, Diamond A, Hainmueller J (2015) Comparative politics and the synthetic control method. J Am Stat Assoc 59:495–510

Ailawadi KL, Zhang J, Krishna A, Kruger M (2010) When Wal-Mart enters: how incumbent retailers react and how this affects their sales outcomes. J Mark Res 47:577–593CrossRef

Artz GM, Stone KE (2006) Analyzing the impact of Wal-Mart supercenters on local food store sales. Am J Agr Econ 88:1296–1303CrossRef

Artz GM, Stone KE (2012) Revisiting Wal-Mart’s impact on Iowa small-town retail: 25 years later. Econ Dev Q 26:298–310CrossRef

Barnes NG, Conell A, Hermeneglido L, Matsson L (1996) The regional differences in the economic impact of Walmart. Bus Horiz 39:21–25CrossRef

Basker E (2005) Job creation or destruction? labor market effects of Wal-Mart expansion. Rev Econ Stat 87:174–183CrossRef

Basker E (2007) The causes and consequences of Wal-Mart’s growth. J Econ Perspect 21:177–198CrossRef

Boschma RA (2005) Proximity and innovation: a critical assessment. Reg Stud 39:61–74CrossRef

Brown S (1993) Retail location theory: evolution and evaluation. Int Rev Retail Distrib Consumer Res 3:185–229

Carling K and Li Y (2017) The power of the synthetic control method, working papers in transport, tourism, information technology and microdata analysis No. 2016:10, Dalarna University

Daunfeldt S-O, Mihaescu O, Nilsson H, Rudholm N (2017) What happens when IKEA comes to town? Reg Stud 51:313–323CrossRef

Daunfeldt S-O, Mihaescu O, Nilsson H, Rudholm N (2019) When IKEA enters: do local retailers win or lose? Pap Reg Sci 98:2295–2313CrossRef

Davidson SM, Rummel A (2000) Retail changes associated with Wal-Mart’s entry into Maine. Int J Retail Distrib Manag 28:162–169CrossRef

Drewianka S and Johnson D (2006) Wal-Mart and local labor markets, 1990–2005, University of Wisconsin-Milwaukee

Dube A, Eidlin B and Lester W (2007) Firm entry and wages: impact of Wal-Mart growth on earnings throughout the retail sector, Working Paper No. 126–05, Institute for Research on Labor and Employment (IRLE)

Foster L, Haltiwanger J, Krizan CJ (2006) Market selection, reallocation, and restructuring in the U.S. retail trade sector in the 1990s. Rev Econ Stat 88:748–758CrossRef

Franklin AW (2001) The impact of Walmart supercenters on supermarket concentration in US metropolitan areas. Agribusiness 17:105–114CrossRef

Gielens K, Van De Gucht LM, Steenkamp J-BEM, Dekimpe MG (2008) Dancing with a giant: the effect of Wal-Mart’s entry into the United Kingdom on the performance of European retailers. J Mark Res 45:519–534CrossRef

Glaeser EL (1999) Learning in cities. J Urban Econ 46:254–277CrossRef

Griffith R, Harmgardt H (2005) Retail productivity. Int Rev Retail, Distrib Consumer Res 15:281–290

Grossman GM, Helpman E (1991) Innovation and growth in the global economy. MIT Press, Cambridge

Håkansson J, Li Y, Mihaescu O, Rudholm N (2019) Big-box retail entry in urban and rural areas: are there productivity spillovers to incumbent retailers? Int Rev Retail Distrib Consumer Res 29:23–45

Haltiwanger JC, Jarmin RR, Krizan CJ (2010) Mom-and-pop meet big-box: complements or substitutes? J Urban Econ 67:116–134CrossRef

Han M, Mihaescu O, Li Y, Rudholm N (2018) Comparison and one-stop shopping after big-box retail entry: a spatial difference-in-difference analysis. J Retail Consum Serv 40:175–187CrossRef

Hernandez T (2003) The impact of big box internationalization on a national market: a case study of Home Depot Inc in Canada. Int Rev Retail, Distrib Consumer Res 13:77–98

Hicks MJ (2007a) Walmart’s impact on local revenue and expenditure instruments in Ohio, 1988–2003. Atl Econ J 35:77–95CrossRef

Hicks MJ (2007b) Job turnover and wages in the retail sector: the influence of Wal-Mart. J Private Enterprise 22:137–160

Hicks MJ (2008) Estimating Wal-Mart’s impact in Maryland: a test of identification strategies and endogeneity tests. East Econ J 34:56–73CrossRef

Hicks MJ, Wilburn KL (2001) The regional impact of Wal-Mart entrance: a panel study of retail trade sector in West Virginia. Rev Reg Stud 31:305–313

Hicks MJ, Stanley KR, Spector LC (2012) Mom-and-pops or big box stores: some evidence of Walmart impact on retail trade. Econ Dev Q 26:311–320CrossRef

Hotelling H (1929) Stability in competition. Econ J 39:41–57CrossRef

Huang Q, Nijs VR, Hansen K, Anderson ET (2012) Wal-Mart’s impact on supplier profits. J Market Res 49:131–143CrossRef

Jia P (2008) What happens when Wal-Mart comes to town: an empirical analysis of the discount retailing industry. Econometrica 76:1263–1316CrossRef

Jones K, Doucet M (2000) Big-box retailing and the urban retail structure: the case of the Toronto area. J Retail Consum Serv 7:233–247CrossRef

Lucas RE (1988) On the mechanics of economic development. J Monet Econ 22:3–42CrossRef

Maican F and Orth M (2012) Productivity dynamics and the role of “Big-Box” entrants in retailing, research institute of industrial economics working paper No. 898

Maican F, Orth M (2015) Dynamic analysis of entry regulations and productivity in retail trade. Int J Ind Organ 40:67–80CrossRef

Marshall A (1890) Principles of economics: an introductory volume. Macmillan, London

McCann P (2001) Urban and regional economics. Oxford University Press, Oxford

Merriman D, Persky J, Davis J, Baiman R (2012) The impact of an urban Wal-Mart store on area businesses: the Chicago case. Econ Dev Q 26:321–333CrossRef

Munasib A, Rickman DS (2015) Regional economic impacts of the shale gas and tight oil boom: a synthetic control approach. Reg Sci Urban Econ 50:1–17CrossRef

Neumark D, Zhang J, Cicarella S (2008) The effect of Wal-Mart on local labor markets. J Urban Econ 63:405–430CrossRef

O’Sullivan A (2003) Urban economics, 5th edn. McGraw-Hill/Irwin, New York

Paruchuri S, Baum JAC, Potere D (2009) The Wal-Mart effect: wave of destruction or creative destruction? Econ Geogr 85:209–236CrossRef

Reynolds J, Howard E, Dragun D, Rosewell B, Ormerod P (2005) Assessing the productivity of the UK retail sector. Int Rev Retail Distrib Consumer Res 15:237–280

Singh VP, Hansen KT, Blattberg RC (2006) Market entry and consumer behavior: an investigation of a Wal-Mart Supercenter. Mark Sci 25:457–476CrossRef

Stone KE (1997) Impact of the Wal-Mart phenomenon on rural communities, increasing understanding of public problems and policies

Teuvo K (1982) Self-organized formation of topologically correct feature maps. Biol Cybern 43:59–69CrossRef

Weber A (1929) Theory of the location of industries. University of Chicago Press, Chicago

Title: How does big-box retail entry affect labor productivity in durable goods retailing? A synthetic control approach
Authors: Niklas Rudholm
Yujiao Li
Kenneth Carling
Publication date: 07-02-2022
Publisher: Springer Berlin Heidelberg
Published in: The Annals of Regional Science / Issue 1/2022
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-022-01110-4

Air pollution and income inequality: a spatial econometric approach

Original Paper

Do workers negative self-select when they commute? Evidence for the Chilean case of long-distance commuting

Original Paper

Club convergence of regional housing prices in China: evidence from 70 major Cities

Original Paper

Locational error in the estimation of regional discrete choice models using distance as a regressor

Open Access
Original Paper

The role of commuter rail accessibility in the formation of residential land values: exploring spatial heterogeneity in peri-urban and remote areas

Original Paper

Cooperation bias in regional policy: Is competition neglected?

Open Access
Original Paper