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How Does Big-Box Entry Affect Labor Productivity in Durable Goods Retailing? A Synthetic Control Approach. How Does Big-Box Entry Affect Labor Productivity in Durable Goods Retailing? A Synthetic Control Approach
Dalarna University, School of Technology and Business Studies, Economics. HUI Research.
Dalarna University, School of Technology and Business Studies, Microdata Analysis.
Dalarna University, School of Technology and Business Studies, Microdata Analysis.ORCID iD: 0000-0003-2317-9157
2018 (English)Report (Other academic)
Abstract [en]

Using  data  from  2001–2012,  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 in our case arguably improves the likelihood of identifying the intervention effect of IKEA entry on labor productivity. As inference relies on a single  treated  observational  unit  (i.e.,  a  single  IKEA-entry  municipality),  statistical  testing  is  a  challenge,  and  randomization  and  replication  for  inference  is  done  with  regard to the pool of control municipalities. 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 the size of the positive effect is related to the size of the new IKEA relative to the size of the existing durable goods retail sector in the entry municipalities, with larger positive effects found in municipalities where the new IKEA was large relative to the existing durable goods retail market.

Place, publisher, year, edition, pages
Stockholm, 2018.
Series
HUI Working Paper Series ; 130
Keywords [en]
Productivity growth;Quantitative Case Study; Parametric Synthetic Matching;Bootstrap Confidence Intervals
National Category
Economics
Research subject
Complex Systems – Microdata Analysis, Handel och regional tillväxt. -Kopplingen mellan regionalt tillväxtarbete och lokala etableringsstrategier.
Identifiers
URN: urn:nbn:se:du-27305OAI: oai:DiVA.org:du-27305DiVA, id: diva2:1185365
Available from: 2018-02-23 Created: 2018-02-23 Last updated: 2018-08-21Bibliographically 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: Högskolan Dalarna, 2018
Series
Dalarna Doctoral Dissertations ; 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: 2018-08-21Bibliographically approved

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