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Point estimates of the average effects of the inverse of distance on the net revenues of firms in retail trade, with 95% confidence intervals (CI), by buffer zone, model 1 (one control municipality).
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... results thus indicate that the effect of IKEA on retail revenues decreases as the distance to the new store increases, with positive spillover effects mostly for retailers located in close proximity to new IKEA stores. This effect is clearly visible in Figure 4, showing the estimated point estimates and the corresponding 95% confidence intervals for each buffer zone. Results regarding the effects of IKEA entry on the number of employees for incumbent retailers in the entry municipalities can be found in Table 5 0.0561 *** = significant at the 1% level; ** = significant at the 5%-level; * = significant at the 10%-level, Figure 5. Point estimates of the average effects of the inverse of distance on the number of employees of firms in retail trade, with 95% confidence intervals (CI), by buffer zone, model 1 (one control municipality). ...
Citations
... From an econometric perspective, the estimation of how big-box retailers might affect the local economies they enter is not easy. Previous studies often use difference-in-difference estimations, sometimes after first having tried to select control group regions with characteristics similar to those of the studied entry regions (e.g., Basker 2007;Daunfeldt et al. 2017Daunfeldt et al. , 2019Håkansson et al. 2019;Han et al. 2018). However, difference-in-difference estimation might not be appropriate in this setting for several reasons. ...
... First, difference-in-difference estimation relies on the assumption that the treated and control regions would have experienced parallel trends in the absence of treatment, i.e., if no big-box retail entry had taken place, labor productivity growth would have been similar in the entry-and non-entry regions used in the differencein-difference estimations. In previous studies (Daunfeldt et al. 2017(Daunfeldt et al. , 2019Håkansson et al. 2019;Han et al. 2018), this assumption has been investigated by plotting the pre-entry trends in the outcome variables for entry and control municipalities, and when found to be parallel, it was argued that these trends would have continued to be parallel in the absence of big-box entry. However, since the validity of this argument cannot be proved, it remains an assumption in these difference-in-difference models. ...
... However, since the validity of this argument cannot be proved, it remains an assumption in these difference-in-difference models. Second, as demonstrated by Daunfeldt et al. (2017Daunfeldt et al. ( , 2019, IKEA does not enter Swedish municipalities at random, but rather after a deliberate process of finding the most profitable entry sites, something that might very well increase the potential problems with the assumption of parallel trends in the absence of entry. Third, the number of treated units is small, with only four Swedish municipalities having had IKEA enter their markets during the study period. ...
Using data from 2001–2012, the effects of IKEA entry in four Swedish municipalities, 2004–2007, on labor productivity in durable goods retailing is investigated using synthetic control methods. We contribute to the literature on synthetic control methods by considering parametric specifications of the intervention effect, which improves the likelihood of identifying the effect of IKEA entry on labor productivity. Our results indicate that in three out of four entry municipalities, labor productivity increased more than in their synthetic counterparts after IKEA entry, and that larger positive effects are found in rural municipalities where the new IKEA was large relative to the existing durable goods retail market.
... These results are, however, based on aggregate data for the municipality and include the sales and employment of IKEA itself. Other studies have found that new IKEA retail areas also creates positive spillover effects on nearby retailers (Daunfeldt et al. 2016;Han et al. 2018;Håkansson et al. 2019), although these positive spillover effects seem too small to motivate the substantial investments that local policymakers often undertake to attract IKEA to the region. ...
... First, previous studies have found that entry of IKEA increases total durable good sales and number of employees within the municipality and has positive spill-over effects on incumbent retailers in terms of both productivity and sales. However, the economic significance of these results does not seem to motivate the large investments that local policymakers often are willing to undertake in order to attract IKEA to their municipality (Daunfeldt et al. 2016;Han et al. 2018;Håkansson et al. 2019). Nevertheless, our results indicate that there may be other benefits that can motivate such investments as access to higher order retailing also increases the attractiveness of the location. ...
Opponents of big-box entry argue that large retail establishments generate noise and other types of pollution and a variety of negative externalities associated with traffic. Big-box advocates, on the other hand, argue that access to a large retail market delivers not only direct economic benefits but also a variety of positive spillover effects and therefore can be considered a consumer amenity that increases the attractiveness of the entry location. To test the validity of these competing arguments, we use the entry of IKEA in Sweden as a quasi-experiment and empirically investigate whether increased access to retail affects place attractiveness, which is proxied by residential property values. We find that IKEA entry increases the prices of the properties sold in the entry cities by, on average, 4.4% or 60,425 SEK (approximately 6,400 USD), but this effect is statistically insignificant for the properties in the immediate vicinity of the new IKEA retail trade area. In addition, we observe an attenuation of the effect with distance from the new IKEA store and the associated retail trade area, where the properties located 10 km away experience a 2% price increase. Our results are in line with some previous findings regarding the effects of entry by Walmart or supermarket stores in the US and show that large retailers have the potential to increase place attractiveness, but perhaps not in the immediate vicinity of the new establishment.
... Methodologically, the estimation of how big-box retail entry might affect the revenues of incumbent firms within the hospitality sector in the entry municipalities is not an easy task. Previous studies of how IKEA entry affects incumbent retailers in local economies (Daunfeldt et al., 2015(Daunfeldt et al., , 2017 use traditional difference-in-differences estimation methods, after first trying to select control group municipalities with similar characteristics to the entry municipalities. We follow these studies in that we first select control group municipalities that are similar to the entry municipalities in terms of the determinants of IKEA entry and other relevant characteristics, and thus suitable to use as counterfactuals when measuring the development in incumbent firms within the hospitality sector in absence of IKEA entry. ...
... In two studies of how entry by IKEA affects revenues and employment in the durable goods retail industry in Sweden (Daunfeldt et al., 2015(Daunfeldt et al., , 2017, control municipalities are identified using logit estimations to detect municipalities where IKEA did not enter, but which had a similar probability of entry based on observables. However, as pointed out by Greenstone et al. (2010), such a strategy implies that the IKEA entry decision can be correctly modeled by the observable characteristics of the municipalities, while in most cases many important characteristics are generally unknown and unobserved by the researcher. ...
... Most importantly, however, is that both the entry and control group municipalities were deemed suitable entry locations by IKEA itself within a 10-year period, indicating that these municipalities should be similar in terms of both observable and unobservable determinants of IKEA entry. Daunfeldt et al. (2015Daunfeldt et al. ( , 2017 and Han et al. (2018) have also demonstrated that for the Swedish entries under study, the regional spillover effects regarding revenues, employment, and productivity in the retail industry of IKEA entry are limited to the entry municipalities. Therefore, we focus our study on the potential spillover effects within the above-mentioned entry municipalities. ...
We use entry by IKEA in four Swedish municipalities as a natural experiment to measure the effects of big-box retail entry on the revenues of incumbent firms in the hospitality sector. We further investigate whether the effects depend on the size of the local market before entry. Our results show a negative impact on the revenues of incumbents in Haparanda, Kalmar, and Karlstad, but insignificant effects in the metropolitan region of Gothenburg. As most firms in the hospitality sector are restaurants, we expect that our results are due to increased competition since all IKEA stores come with large, popular, and reasonably-priced restaurants.
... Previous studies of big-box retail entry mostly use difference-in-difference (DiD) estimations, often after having first selected control regions with characteristics similar to the entry regions (e.g., Basker 2007;Daunfeldt et al. 2015Daunfeldt et al. , 2017Håkansson et al. 2018;Han et al. 2018). However, a potential weakness of DiD analysis is that it estimates the average IKEA entry effect on all firms, ignoring the possibility of subgroup heterogeneity in the effects. ...
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%.
... Previous studies indicate that when IKEA enters the market, incumbent retailers increase their use of labour ( Daunfeldt et al., 2015;2017) and capital . Also, in Swedish retailing, small firms tend to grow faster than larger firms (Daunfeldt et al, 2012). ...
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-indifference 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-indifference 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%.
... Methodologically, the estimation of how big-box retail entry might affect the productivity of incumbents within the hospitality sector in the entry municipalities is not an easy task. Previous studies of how IKEA entry affects incumbent retailers in local economies (e.g., Daunfeldt et al., 2015Daunfeldt et al., , 2017 use traditional difference-in-difference estimations, after first having tried to select control group municipalities with similar characteristics to the entry municipalities under study. We follow these studies in that we first select control group municipalities that are similar to the entry municipalities in terms of the determinants of IKEA entry and other relevant characteristics, and thus suitable to use as counterfactuals when measuring the development in incumbent firms within the hospitality sector in absence of IKEA entry. ...
... In two studies of how entry by IKEA affects revenues and employment in the durable goods retail industry in Sweden (Daunfeldt et al., 2015(Daunfeldt et al., , 2017, control municipalities are identified using logit estimations to detect municipalities where IKEA did not enter, but which had a similar probability of entry based on observables. However, as pointed out by Greenstone et al. (2010), such a strategy implies that the IKEA entry decision can be correctly modeled by the observable characteristics of the municipalities, while in most cases many important characteristics are generally unknown and unobserved by the researcher. ...
... Most importantly, however, is that both the entry-and control group municipalities were deemed suitable entry locations by IKEA itself within a 10-year period, indicating that these municipalities should be similar in terms of both observable and unobservable determinants of IKEA entry. Daunfeldt et al. (2015Daunfeldt et al. ( , 2017 and Han et al. (2018) have also demonstrated that for the Swedish entries under study, the regional spillover effects regarding revenues, employment and productivity in the retail industry of IKEA entry are limited to the entry municipalities, so we focus our study on the potential spillover effects within the above-mentioned entry municipalities. ...
This paper empirically measures the effects of big-box retail entry on the productivity of incumbent firms within the hospitality sector in the entry regions and investigates whether the effects differ depending on the size of the local market before entry. We use the entry of IKEA in four Swedish municipalities as a natural experiment to study how it affects productivity in incumbent firms within the hospitality sector. Our results show that entry by IKEA has a negative impact on the productivity of incumbents in Haparanda, Kalmar, and Karlstad, but no statistically significant effects in the metropolitan region of Gothenburg. As the majority of firms in the hospitality sector are restaurants, we expect that our results are due to increased competition within this part of the hospitality sector since all new IKEA stores come with a large, popular, and reasonably-priced restaurant.
... From an econometric perspective, the estimation of how big-box retailers might affect the local economies they enter is not easy. Previous studies often use difference-in-difference estimations, sometimes after first having tried to select control group regions with characteristics similar to those of the studied entry regions (e.g., Basker 2007;Daunfeldt et al. 2015Daunfeldt et al. , 2017Håkansson et al. 2016;Han et al. 2018). However, difference-in-difference estimation might not be appropriate in this setting for several reasons. ...
... First, difference-in-difference estimation relies on the assumption that the treated and control regions would have experienced parallel trends in the absence of treatment, i.e., if no big-box retail entry had taken place, labor productivity growth would have been similar in the entry-and non-entry regions used in the difference-in-difference estimations. In previous studies (Daunfeldt et al. 2015(Daunfeldt et al. , 2017Håkansson et al. 2016;Han et al. 2018), this assumption has been investigated by plotting the pre-entry trends in the outcome variables for entry and control municipalities, and when found to be parallel, it was argued that these trends would have continued to be parallel in the absence of big-box entry. However, since the validity of this argument cannot be proven, it remains an assumption in these difference-in-difference models. ...
... However, since the validity of this argument cannot be proven, it remains an assumption in these difference-in-difference models. Second, as demonstrated by Daunfeldt et al. (2015Daunfeldt et al. ( , 2017, IKEA does not enter Swedish municipalities at random, but rather after a deliberate process of finding the most profitable entry sites. As discussed in Ando (2015), this might very well increase the potential problems with the assumption of parallel trends in the absence of entry. ...
Using data from 2001-2012, the effects of IKEA entry in four Swedish municipalities, 2004-2007, on labor productivity in durable goods retailing is investigated using synthetic control methods. We contribute to the literature on synthetic control methods by considering parametric specifications of the intervention effect, which in our case arguably improves the likelihood of identifying the intervention effect of IKEA entry on labor productivity. As inference relies on a single treated observational unit (i.e., a single IKEA-entry municipality), statistical testing is a challenge, and randomization and replication for inference is done with regard to the pool of control municipalities. Our results indicate that in three out of four entry municipalities, labor productivity increased more than in their synthetic counterparts after IKEA entry, and that the size of the positive effect is related to the size of the new IKEA relative to the size of the existing durable goods retail sector in the entry municipalities, with larger positive effects found in municipalities where the new IKEA was large relative to the existing durable goods retail market.
... Outside Wal-Mart and the US market, Jones and Doucet (2000) and Hernandez (2003) studied the Canadian market and big-box entry in general, while Daunfeldt et al. (2016Daunfeldt et al. ( , 2017 investigated the impact of IKEA entry on revenues and employment in Swedish municipalities. Daunfeldt et al. reported an increase in durable goods retail revenues by an average of 20% and in durable goods retail employment by an average of 17% in Swedish municipalities where IKEA chose to enter during the 2004-2007 period (Daunfeldt et al., 2017). ...
... Daunfeldt et al. reported an increase in durable goods retail revenues by an average of 20% and in durable goods retail employment by an average of 17% in Swedish municipalities where IKEA chose to enter during the 2004-2007 period (Daunfeldt et al., 2017). They also reported that these effects decrease with distance from IKEA (Daunfeldt et al., 2016). ...
... Methodologically, the estimation of how IKEA entry might affect the productivity of incumbent retailers in the entry municipalities is not an easy task. Previous studies of how IKEA affects incumbent retailers in local economies (Daunfeldt et al., 2016;Håkansson et al., 2016) use traditional difference-in-difference estimations, after first having tried to select control group municipalities with similar characteristics to the entry municipalities under study. We follow these studies in that we first select control group municipalities we believe to be similar to the entry regions in terms of the determinants of incumbent retailers' productivity development in the absence of entry. ...
This paper empirically measures the potential spillover effects of big-box retail entry on the productivity of incumbent retailers in the entry regions, and investigates whether the effects differ depending on 1) if the entry is in a rural or urban area, and 2) if the incumbent retailers are within retail industries selling substitute or complement goods to those found in IKEA. To identify the IKEA-entry effect, a difference-in-difference model is suitable, but traditionally such estimators neglect the possibility that firms’ sales are determined by a process with spatially interactive responses. If ignored, these responses may cause biased estimates of the IKEA entry effect due to spatial heterogeneity of the treatment effect. One objective of this paper is thus to propose a spatial difference-in-difference estimator accounting for possible spatial spillover effects of IKEA entry. Particular emphasis is placed on the development of a suitable weight matrix accounting for the spatial links between firms, where we allow for local spatial interactions such that the outcome of observed units depends both on their own treatment as well as on the treatment of their neighbors. Our results show that for complementary goods retailers (or one-stop shopping retailers) in Haparanda and Kalmar, productivity increased by 38% and 19%, respectively, due to IKEA entry. No statistically significant effects were found for the entries in Karlstad and Gothenburg, indicating that it is mainly incumbents in smaller entry regions that benefit from IKEA entry. Also, for incumbent retailers selling substitute (or comparison shopping) goods no significant effects were found in any of the entry regions, indicating that it is mainly retailers selling complementary goods that benefit from IKEA entry. Finally, our results also show that ignoring the possibility of spatially correlated treatment effects in the regression models reduces the estimated impact of the IKEA entries in Haparanda and Kalmar on productivity in one-stop shopping retail firms with 3 and 0.6 percentage points, respectively.
... Previous studies of the effects of big-box retail entry on surrounding businesses have mainly considered the impact on retail revenues or retail employment and have been based mainly on the entry of Wal-Mart stores in the USA, 2 although there are some exceptions. For example, Jones and Doucet (2000) and Hernandez (2003) studied the Canadian market and big-box entry in general, while Daunfeldt et al. (2015aDaunfeldt et al. ( , 2015b investigated the impact of IKEA entry on revenues and employment in Swedish municipalities. ...
... The results of these studies are ambiguous, with some finding positive (Davidson and Rummel, 2000;Artz and Stone, 2012, Daunfeldt et al., 2015a, 2015b and others negative (e.g., Merriman et al., 2012) impacts of big-box entry on retail revenues. The findings regarding the impact on employment are also inconclusive. ...
... In two studies of how entry by IKEA affects revenues and employment in the entry municipalities in Sweden (Daunfeldt et al., 2015a(Daunfeldt et al., , 2015b, control municipalities were identified using logit estimations to detect municipalities where IKEA had not entered, but which had a similar probability of entry based on observables. However, as pointed out by Greenstone et al. (2010), such a strategy implies that the entry decision can be correctly modeled by the observable characteristics of the municipalities, while in most cases many important characteristics are generally unknown and unobserved by the researcher. ...
