Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade
University of Missouri - Department of Economics; U.S. Census Bureau - Center for Economic Studies
Van H. Pham
Baylor University - Department of Economics
University of Missouri-Columbia Working Paper
Retail chains and imports from developing countries have grown sharply over the past 25 years. Wal-Mart's chain, which currently accounts for 10% of U.S. imports from China, grew 10-fold and its sales 90-fold over this period, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. This mechanism can explain why a surge in U.S. imports followed relatively modest tariff declines and why Wal-Mart abandoned its Buy American campaign in the 1990s. Also consistent with these facts, we show that tariff reductions have a greater effect the more advanced the retailer's technology. The model has implications for the pace of the product cycle and sheds light on the recent apparent acceleration in foreign outsourcing.
Number of Pages in PDF File: 55
Keywords: Wal-Mart, Trade, Economies of Scale, China, Technological Change, Retail Chain
JEL Classification: L11, L81, F12
Date posted: August 4, 2005
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