Estimating Wal-Mart's Impacts in Maryland: A Test of Identification Strategies and Endogeneity Tests
- PDF / 193,798 Bytes
- 18 Pages / 505 x 720 pts Page_size
- 48 Downloads / 150 Views
Estimating Wal-Mart’s Impacts in Maryland: A Test of Identification Strategies and Endogeneity Tests Michael J. Hicks Ball State University. E-mail: [email protected]
In this paper, I estimate the impact of Wal-Mart on labor markets in Maryland. My goal is to compare estimation techniques that incorporate corrections for endogeneity of WalMart’s entrance and those that test for and fail to reject exogeneity in Wal-Mart’s entrance decision. The instrumental variable approaches I test include those offered by Basker and Neumark et al., and a new test introduced in this paper. I also explain why differences in choice of sample time and location may lead to different findings as to the impact of Wal-Mart. I find that there is weak evidence of endogeneity in Wal-Mart’s entrance decision, but that the bias is opposite of that anticipated by most researchers. Most interestingly, there are no significant differences across instrumental variable techniques employed in the literature. As for Wal-Mart in Maryland, that exposure to Wal-Mart leads to lower retail employment (from zero to 414 retail jobs), but significantly higher retail wages (as much as $1.95 per hour) at the county level. I also find that exposure to Wal-Mart has no effect on aggregate labor markets, though aggregate wages are positively affected, although the impact is very small (roughly $160 per year). I recommend that Maryland adopt a policy neutral approach to Wal-Mart. Eastern Economic Journal (2008) 34, 56–73. doi:10.1057/palgrave.eej.9050002 Keywords: Wal-Mart; instrument; Maryland JEL: R11; R51; H71
BACKGROUND Wal-Mart’s ubiquity has spawned considerable analysis from a variety of research traditions. Most of these studies assess the local economic consequences of WalMart’s entrance on employment, wages, and retail and wholesale structure. However, only a handful of these employ methods that effectively attempt to evaluate the incremental effects of a Wal-Mart on these variables. This leaves many important questions unanswered. A central question to researchers is the problem of endogeneity within Wal-Mart’s entrance decision. Simply, estimates of Wal-Mart’s impact must be disentangled from growth in regions that were occurring or would have occurred anyway. Failure to do so potentially biases the estimates. To date, three approaches have been employed to account for endogenous entrance decisions in an estimation of the impacts on labor markets and retail structure. In this paper I review these methods, adding a fourth identification strategy based upon comments regarding Wal-Mart’s entrance decisions made by a company executive. I also test endogeneity of WalMart’s entrance decision on several variables, which may be employed to choose location, timing, and date. I extend this analytical framework to the impact WalMart may have on overall employment and wages. I begin by reviewing the most recent studies that attempt to evaluate endogeneity and treat its presence econometrically. I then add to the identification debate by
Michael J. Hicks Estimating
Data Loading...
