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1. The WalMart Prices:
Implications and Explanation
Alice Nakamura (University of Alberta)
Leonard Nakamura (Federal Reserve Bank of Philadelphia)
Marc Prud’homme (Statistics Canada)
Disclaimer: The views expressed here are those of the authors and do not
necessarily reflect those of the Federal Reserve Bank of Philadelphia, the
Federal Reserve System,or Statistics Canada.

2. Overview
• This reports a preliminary stage in the
investigation of WalMart's impact on
measured retail prices and productivity in
US and Canadian economy
• There has been a spate of work done on
WalMart (more than 20 academic papers)
• Can state and provincial data permit us to
discern productivity impacts of WalMart on
the retail sector as a whole?

3. What is WalMart’s impact on
productivity?
• What has been the impact of the
impressive success of WalMart stores on
overall retail productivity?
• Measured retail productivity growing
briskly in US and Canada
– Particularly for general merchandise retailers
– Not for grocery stores
• Is this due to WalMart?

4. McKinsey: Yes, WalMart is crucial
• According to the 2001 McKinsey Global productivity
report, “From 1995-2000, general merchandise retailers
doubled their productivity growth rates (10.1 percent per
year from an already high 4.8 percent per year) and
contributed 16 percent of the total retail productivity
growth jump. The productivity jump in this sub sector
was primarily due to heightened competitive intensity
(due to the continued growth of WalMart) and increased
consumer substitution toward higher-valued goods.”

5. Hausman and Leibtag: Wal-Mart's
productivity is under-measured
• Wal-Mart’s goods are not considered the same
as predecessor retailers
– Wal-Mart's prices may be 20 to 25 % below prices of
other general merchandise retailers
– Hausman and Leibtag discern big price differentials
between WalMart and competitors in grocery items
• Are these price differentials due to lower quality?
• Basker data suggests that WalMart forces competitor prices
lower
• Perhaps retail productivity has risen for other
reasons
– Rapidly rising quality of electronics is attributed to
retailers as well

6. US Data on WalMart and General Merchandise Retail Employment and Sales
WalMart
Percent of General Merchandise
retail sales
WalMart,
Percent of General Merchandise payroll
employment
1977 0.7 % 0.54 %
1987 8.3 % 4.26 %
1997 29.4 % 18.1 %
2007 39.2 % NA

7. Retail productivity, US, real retail sales per worker:
General Merchandise Stores and WalMart, 1982-2002
Basker data GM, WalMart GM ex
WalMart
Ratio
WalMart to
GM ex
WalMart,
1982 134.4 148.5 134.1 1.11
2002 191.4 256.2 161.4 1.59
growth
rate
1.7 % 2.7% 0.9 %

8. Our preliminary work
• Begins with state and provincial retail data
– Our data are for all of retailers, not just general merchandisers
• What is impact of WalMart stores on state and provincial
retail productivity
• Use fixed effects regressions with year dummies
• Number of stores in operation (S) is our independent
variable of interest
– Problem with endogeneity
– Instruments constructed
• Scale “stores” variable by inverse of size of state or
provincial retail employment in base year (to reduce
heterogeneity)

9. Distance and WalMart store
openings
• As Holmes has shown, WalMart’s success
depended on economies of density.
• These economies provided a strong incentive to
minimize costs by gradually building out stores
in a diffusion process that originated in
Arkansas.
• This provides a potential instrument: distance
from Arkansas.
• We used state centroids to estimate the date of
WalMart’s entry. Regressing year of WalMart
entry on centroid distance from Arkansas has an
adjusted Rsq of .87.

10. Distance From Arkansas (in miles) by Year of First Walmart Store
Opening
(a set of coordinates for each of the contiguous United States, except for
Arkansas)

11. Cumulative WalMart store openings usually plateau in a state after
about 15 years:
Create an average WalMart time profile of entry for instruments
Store openings of ten states
0
20
40
60
80
100
120
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
AL
AR
IA
KS
KY
MD
MI
MS
SC
TN

12. Create an instrument for each state
• Based on
– Distance from Arkansas (determines date of
first entry)
– Average cumulative stores open
– Assume store entry into the state is complete
15 years after entry
– Profile is constant thereafter

13. Instruments for some states
0
20
40
60
80
100
120
140
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
FL
GA
IA
IL
IN
MI
MN
ND

14. US result
• WalMart openings have a small negative
impact on measured US retail productivity
– Not capturing WalMart impact on productivity
very well in state data
– State level retail GDP allocated to states
based on employment
– Also, perhaps not capturing dynamics very
well (perhaps need spatial lag model)

15. Estimation results
US iv regressions: WalMart store openings
reduce retail labor productivity!
state retail
labor
productivity
state retail
labor
productivity
stores(i,t)/jobs(i,1977) -.475
(.267)
.077
.488
(.792)
.538
stores(i,t-1)/
jobs(i,1977)
-.942
(.727)
.195
Joint significance .073
year dummies Y Y
fixed effects Y Y
Bootstrap standard
errors
Y Y
Within R Sq .695 .695
Observations 987 940
instrument predicted
stores
predicted
stores
First stage within R-
sq
.82 .81

16. In Canada, WalMart entered by
acquisition
• Canada entered WalMart in 1994 after
purchasing the Woolco chain and
reopening 133 stores, with an immediate
presence in 9 of the 10 provinces.
• Haven’t come up with good instrument,
using lags of store openings as
instruments

17. WalMart openings by year
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Prince Edward Island 0 0 0 0 0 0 1 1 2 2 2 2 2 2
Alberta 0 16 16 16 18 20 22 24 26 30 32 34 34 38
Manitoba 0 9 9 9 9 9 10 10 10 11 11 12 13 13
New Brunswick 0 4 4 4 4 4 4 4 4 6 6 8 9 10
Newfoundland 0 7 7 7 7 7 7 7 9 9 9 9 11 11
Nova Scotia 0 6 6 7 7 7 7 7 9 9 11 12 14 15
Ontario 0 46 51 51 53 58 63 65 69 70 74 84 88 94
Quebec 0 23 24 25 29 31 32 32 36 39 42 45 48 51
Saskatchewan 0 8 8 8 8 8 10 11 11 11 12 12 12 12
British Columbia 0 13 13 13 13 14 15 16 20 22 24 27 28 29
Total 0 133 139 141 149 159 172 178 198 211 225 247 261 277

18. Canada
• Reasonably sizeable WalMart impact on retail
productivity
– Estimate that WalMart entry resulted in 10 percent
increase in retail productivity over 12 year period
– Use only lags as instruments
– Not tightly estimated (with bootstrap standard errors
just insignificant at 10 percent level)
– Timing of WalMart entry may be a problem
– Based only on 4 largest provinces (Ontario, Quebec,
British Columbia, Alberta) – 83 percent of total
population

19. Canada iv regressions: WalMart store openings
raise retail labor productivity as expected, but
insignificant coefficients
province
retail labor
productivity
province
retail labor
productivity
stores(i,t)/hours(i,1993) .0287
(.0182)
.116
.135
(.135)
.316
stores(i,t-1)/
hours(i,1977)
-.084
(.094)
.374
Joint significance .266
year dummies Y Y
fixed effects Y Y
Bootstrap standard
errors
Y Y
Within R Sq .886 .753
Observations 52 44
instrument lagged
stores
lagged
stores
First stage, within R-sq .98 .98

20. Conclusion
• Preliminary work suggests that this
methodology may be useful in uncovering
the impact of WalMart on measured
productivity
– WalMart has raised productivity in fact, but
possibly not as we measure it
– Suggestions welcome