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Agglomeration economies in urban retailing: Are there productivity spillovers when big-box retailers enter urban markets?
Dalarna University, School of Technology and Business Studies, Microdata Analysis.ORCID iD: 0000-0001-6814-3970
Dalarna University, School of Technology and Business Studies, Human Geography.ORCID iD: 0000-0003-4871-833X
HUI Research, Stockholm, Sweden.ORCID iD: 0000-0003-3362-5755
HUI Research, Stockholm, Sweden.
2019 (English)In: Applied Economics Letters, ISSN 1350-4851, E-ISSN 1466-4291, Vol. 26, no 19, p. 1586-1589Article in journal (Other academic) Published
Abstract [en]

Previous studies have found that big-box retail entry does not affect the productivity of incumbent retailers when entry occurs in urban areas. In this paper, we show that there are positive spillover effects of big-box retail entry to incumbent retailers in urban areas as well, but that these are limited to relatively small retailers, making the effects difficult to detect using traditional econometric methods, such as difference-in-difference estimation on the full sample of firms. In a two-step procedure, we first use panel smooth transition regression to determine size thresholds that delimit incumbent retail firms by their possible reactions to the new big-box entry. We then use difference-in-difference estimations on these subgroups of firms to determine, within each group, the direction and magnitude of the effects of big-box entry on their productivity. For the group of small incumbent retailers, we find positive spillover effects on productivity of approximately 9%.

Place, publisher, year, edition, pages
2019. Vol. 26, no 19, p. 1586-1589
Keywords [en]
Productivity growth; Cobb-Douglas production function; IKEA; panel smooth transition regression; regression tree analysis.
National Category
Economics and Business
Research subject
Complex Systems – Microdata Analysis
Identifiers
URN: urn:nbn:se:du-27882DOI: 10.1080/13504851.2019.1588939ISI: 000461969800001Scopus ID: 2-s2.0-85063161158OAI: oai:DiVA.org:du-27882DiVA, id: diva2:1218505
Funder
Swedish Retail and Wholesale Development Council, 2015:4Available from: 2018-06-14 Created: 2018-06-14 Last updated: 2019-11-26Bibliographically approved
In thesis
1. Who benefits when IKEA enters local markets in Sweden?: An empirical assessment using difference-in-difference analysis, synthetic control methods, and Twitter sentiment analysis
Open this publication in new window or tab >>Who benefits when IKEA enters local markets in Sweden?: An empirical assessment using difference-in-difference analysis, synthetic control methods, and Twitter sentiment analysis
2018 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Policy makers often spend considerable amounts of money to attract IKEA to their region despite not having any empirical measurements on its expected contribution to the local economy. As such, an empirical study of the economic and social impact of new IKEA stores can aid political decision making, and contribute to the literature regarding how big-box retail entry affects the regions where they enter.

This dissertation aims to estimate: the impact of IKEA entry on incumbent retailers productivity, and investigate if the impact is heterogenus depending on local maket size, type of retail industry, distance to surrounding retailers, and firm size; IKEA entry effects on the average labor productivity in durable goods retailing in the entry regions; and, finally, public opinions regarding  IKEA entry.

For IKEA entry effects on incumbent retailers, Paper I~III separately examine four factors of potential heterogeneity. Paper I finds that market size matters: smaller rural regions have bigger IKEA effects. Paper II considers two factors: firm industry and distance, and confirms that IKEA entry effects dissipate over distance. The positive impact of IKEA entry on incumbent retailers is limited to those selling complementary goods to IKEA. No positive effects were found for the urban entry in Gothenburg in the two first papers, which is somewhat surprising. Paper III found that a positive effect exist also in Gothenburg, but it is limited to relatively small incumbent retailers with a capital stock below 1 500 000 SEK. Policy making tends to consider IKEA overall effects on entry municipalities besides IKEA spillover effects on firms. Paper V shows that rural regions are affected by IKEA entry, while larger urban markets are not.

For the social effects of IKEA, Paper VI uses Twitter text mining to study public opinions regarding IKEA entry into local markets. The new IKEA stores under study caught significant public attention at the time of entry, with mostly positive attitudes toward the new stores. The favorite topics for discussion at the time of the different IKEA entries were heterogeneous depending on location.

Methodologically, Paper I uses traditional Difference-in-Difference (DID) to have an initial understanding of IKEA entry spillover effects in four regions; Paper II extends to Spatial DID to catch the spatial interaction between firms; Paper III uses Panel Smooth Transition Regression to identify heterogenous effects due to firms size. Paper IV investigates a new treatment effects estimation aproach, Synthetic Control Method (SCM), to explore when the SCM is powerful, and how to improve its performance; Paper V then uses SCM to estimate IKEA effects at municipality level. In addition, to make SCM developed readily available for other researchers, the author of this thesis also published one web-application to implement a synthetic control method power test, and another to implement parametric & non-parametric estimation and inference.  

These findings confirm that IKEA has a positive effect on the regions where they enter. Nevertheless, governments that are to decide if to allow a big-box retail entry into their local community should be aware that the impact of such entry will depend on the size of the existing retail market, the type of existing retail industry, and the size of existing retailers in the entry region.

Place, publisher, year, edition, pages
Borlänge: Dalarna University, 2018
Series
Dalarna Doctoral Dissertations in Microdata Analysis ; 7
Keywords
big-box entry effect; spatial spill-over effect; heterogeneous causal effect; difference-in-difference; synthetic control method; sentiment analysis.
National Category
Economics and Business
Research subject
Complex Systems – Microdata Analysis
Identifiers
urn:nbn:se:du-27896 (URN)978-91-85941-85-8 (ISBN)
Public defence
2018-09-14, Clas Ohlson, Borlänge, 13:00 (English)
Opponent
Supervisors
Funder
Swedish Retail and Wholesale Development Council, 2015:4
Available from: 2018-08-21 Created: 2018-06-14 Last updated: 2019-06-17Bibliographically approved

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Li, YujiaoHåkansson, JohanMihaescu, OanaRudholm, Niklas

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