Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade

University of Missouri-Columbia Working Paper

55 Pages Posted: 4 Aug 2005  

Emek Basker

U.S. Census Bureau - Center for Economic Studies; University of Missouri - Department of Economics

Van H. Pham

Baylor University - Department of Economics

Date Written: July 2005

Abstract

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.

Keywords: Wal-Mart, Trade, Economies of Scale, China, Technological Change, Retail Chain

JEL Classification: L11, L81, F12

Suggested Citation

Basker, Emek and Pham, Van H., Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade (July 2005). University of Missouri-Columbia Working Paper. Available at SSRN: https://ssrn.com/abstract=765564 or http://dx.doi.org/10.2139/ssrn.765564

Emek Basker (Contact Author)

U.S. Census Bureau - Center for Economic Studies ( email )

4600 Silver Hill Road
Washington, DC 20233-9100
United States

University of Missouri - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

HOME PAGE: http://emekbasker.org

Van H. Pham

Baylor University - Department of Economics ( email )

One Bear Place #98003
Waco, TX 76798
United States
(254) 710-3521 (Phone)
(254) 710-6142 (Fax)

HOME PAGE: http://www.baylor.edu/van_pham

Paper statistics

Downloads
459
Rank
49,592
Abstract Views
2,733