Multinational Retailers and Home Country Exports

This paper questions whether the overseas expansion of a country's retailers fosters overall bilateral exports towards these host markets. To address this question, we consider an empirical trade model, where the foreign sales of multinational retailers reduce the fixed and variable trade costs of their co-national firms towards the same destination markets. We test our model with data on bilateral exports on a large panel of countries and the foreign sales of world's largest one hundred retailers over the 2001-2010 decade. For compatibility of data on exports and retailer's sales, we focus only on trade in agri-food products that are sold in most of retail outlets. We use an instrumental variables approach in order to control for a simultaneity and an endogeneity bias, both bilateral exports and retailers' sales being determined by a number of common observed and non-observed factors. Bilateral retail investments arise only for a small share of country pairs in our data. In order to address this feature of the data, we use alternative generated instruments that take into account the partially discrete distribution of retailers' sales abroad. We find a strong positive effect of the overseas presence of a country's retailers on its exports to those markets. This outcome is far from being trivial, as most products sold in retailers foreign outlets are locally-produced. It testifies that the overseas presence of a country's retail companies contributes to the reduction of trade costs towards these very markets for other origin country firms. Our result is robust to different specifications, the use of different sets of instrumental variables and econometric approaches.