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

Emek Basker and Van Pham ()

No 506, Working Papers from Department of Economics, University of Missouri

Abstract: Retail chains and imports from developing countries have grown sharply over the past 25 years. Wal-Marts 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 retailers 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 (search for similar items in EconPapers)
JEL-codes: L11 L81 F12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int, nep-sea and nep-tra
Date: 2005-07-20, Revised 2005-10-07
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