How Does Big-Box Entry Affect Labor Productivity in Durable Goods Retailing? A Synthetic Control Approach

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.