Three essays on retail globalisation and international trade

Hwang, Kyung In (2019) Three essays on retail globalisation and international trade. PhD thesis, University of Nottingham.

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Using the empirical context of Korea's retail sector, this thesis brings together three empirical essays that examine the significance of the retail sector in the global economy.

The first essay examines how retail market powers influence the impact of tariff cuts on consumer prices in the context of Korea’s tariff reduction since the mid-1980s. Using consumption-item-level consumer price index (CPI) and product-level tariff data with a new matching strategy, we empirically find that tariff cuts incompletely pass through to consumer prices. Guided by a simple theoretical framework based on an oligopolistic competition model with a nested CES demand, this essay considers markups charged by retailers as a new channel by which consumer prices do not fully react to tariff cuts. To identify the retail markup channel, we firstly find that tariff pass-through to consumer prices are deteriorated in regions with greater retail market concentrations. Further, this essay measures retail markups proxied by price-cost margins, and quantifies the degree to which retail markups exacerbate tariff pass-through using a new instrumental variable strategy. The instrument variable estimation reveals that a 10 percentage point increase in retail markups contributes to 1.73-1.96 percent lower tariff pass-through. Our results are robust with estimation based on limited four-year census data by which we account for store-level variations and geographical market heterogeneities in retail markup measure. We also estimate the retail markup channel augmented by spatial autoregressive (SAR) regression model to control for CPI's spatially cross-section dependence, and the results are robust.

The second essay aims to answer the question about whether strategic interactions affect FDI (Foreign Direct Investment)'s market entry. From the literature, the answer is less clear as host-country markets are generally considered as being perfectly competitive. Under the imperfectly competitive market, however, even multinational enterprises cannot act in a vacuum. In this essay, we study the strategic aspect of FDI's entry into host-country markets. To study it, we use an empirical context of the Korean discounting retail industry where, as the first and the second biggest firms, a domestic retailer (Emart) competes with a multinational retailer (Tesco) by opening multiple stores across local markets. We empirically show that retail FDI enters host-country markets strategically by reduced-form estimations. Further, we build an entry game-theoretical model in which the strategic interaction is fully incorporated, and estimate the structural parameters of the model. The existence of strategic entry is clearly confirmed by structural estimation results. We also find that asymmetric information between foreign and domestic retailers play a key role in forming FDI's strategic market entry.

Lastly, the third essay studies whether multinational enterprises affect domestic firms’ markups. Since Korea liberalised retail FDI in 1996, foreign stores have proliferated over the Korean market whereas average markup of local stores has declined to a large degree. To assess the causal impact of retail FDI on domestic markups, we use the inverse propensity-score weighting regression (IPW) model combined with difference-in-difference (DD) approach. In this essay, we find that multinational retailers have a causal impact on reduction in average local markups. Through the lens of IPW and DD, we also find that the decrease in domestic markups is thoroughly driven by pro-competitive effects through the entry of foreign retailers, but productivity spillover effects induced by multinational retailers are limited. This essay also reveals that Korean large discount stores, of which scales, functions and product assortments are very similar to multinational stores, have no impact on average markups, indicating that only FDI plays a role in decline in markups.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Girma, Sourafel
Yu, Zhihong
Keywords: Retail sector, Korea; foreign direct investment; large discount stores; consumer prices
Subjects: H Social sciences > HF Commerce
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > School of Economics
Item ID: 56011
Depositing User: Hwang, Kyung
Date Deposited: 23 Jul 2019 04:40
Last Modified: 06 May 2020 12:03

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