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Abstract

The recent rapid growth in modern food retailing can be either driven by price decreases associated with efficiency gains in the supply chain over time, or it can be driven by growing consumer demand for nonprice characteristics, such as added convenience and higher quality goods. However, the price decreases associated with efficiency gains are likely to have a much larger effect on food demand and welfare in developing countries. Despite the importance of the question, few studies have empirically analyzed which driver has been more important to the spread of modern food retailing. Using a newly constructed data set of 103 developing countries, we find suggestive evidence of the expansion being primarily driven by growth in demand for nonprice characteristics. Specifically, we find that variation in demographic characteristics, such as share of the population who would benefit most from the convenience offered by modern formats, are associated with large variations in supermarket growth over the past decade. On the other hand, growth in modern food retailing appears uncorrelated with variation in the ease of developing efficient supply chains. Thus, although having the possibility to deliver large welfare gains to developing countries, the expansion of modern supermarkets likely has had much more muted effects. [EconLit citations: O100; L100; Q130]. © 2011 Wiley Periodicals, Inc.