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Wal-Mart as Catalyst to U.S.-China Trade

56 Pages Posted: 21 May 2007 Last revised: 9 Apr 2008

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: April 2008

Abstract

Retail chains and imports of consumer goods from developing countries have grown sharply over the past 25 years. Wal-Mart's sales, which currently account for 15% of U.S. imports of consumer goods from China, grew 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, creating a two-way relationship between the chain's size and its sourcing choice. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. Calculations based on our model suggest that the existence of the chain more than doubles the sensitivity of imports to tariff reductions. Technological innovations account for approximately 60% of Wal-Mart's growth from 1984-2004 and reductions in input cost, due to tariff reductions and changes in sourcing, account for 40% of this growth.

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., Wal-Mart as Catalyst to U.S.-China Trade (April 2008). Available at SSRN: https://ssrn.com/abstract=987583 or http://dx.doi.org/10.2139/ssrn.987583

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

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