Despite the controversy often surrounding retail sector liberalization, there little empirical evidence on the implications of such a reform. Using data from Romania, this study sheds light on what happens to the supplying industries after a country opens its retail sector to foreign direct investment. The study relies on a unique dataset combining outlet-specific information on global retail chains with a panel of Romanian manufacturing firms. The difference-in-difference analysis finds that the expansion of global retail chains leads to a significant increase in the total factor productivity (TFP) in the supplying manufacturing industries: their entry into a region raises the TFP by 3.8-4.7%. These results suggest that liberalizing retail sector can boost performance of domestic manufacturing. (JEL codes: F23, F14, L81, D24). © The Author 2014. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved.
