Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 137: Agglomeration economies in urban retailing: Are there productivity spillovers when big-box retailers enter urban markets?

Yujiao Li (), Johan Håkansson, Oana Mihaescu and Niklas Rudholm
Additional contact information
Yujiao Li: School of Technology and Business Studies, Postal: Dalarna University, Falun, Sweden
Johan Håkansson: School of Technology and Business Studies, Postal: Dalarna University, Falun, Sweden
Oana Mihaescu: HUI Research, Postal: Regeringsgatan 60, 103 29 Stockholm, Sweden,
Niklas Rudholm: HUI Research, Postal: Regeringsgatan 60, 103 29 Stockholm, Sweden,

Abstract: 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%.

Keywords: Productivity growth; Cobb-Douglas production function; IKEA; panel smooth transition regression; regression tree analysis

JEL-codes: D22; L11; L25; P25

9 pages, June 5, 2018

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