Wal-Mart and small business (updated)

Many commentators have argued that mega discount store Wal-Mart is death to small "mom-and-pop" businesses. President Clinton's former secretary of labour, Robert B. Reich, wrote in a 2005 New York Times op-ed that Wal-Mart turns "main streets into ghost towns by sucking business away from small retailers."

An interesting and obvious question is, How true is this? To answer this question consider the graph below

The graph is from an article (Has Wal-Mart Buried Mom and Pop?) by Andrea M. Dean and Russell S. Sobel in the latest issue (Vol. 31, No. 1, Spring 2008) of Regulation. With regard to this graph Dean and Sobel write

Interestingly, the slope of the regression line in Figure 4b is actually positive and significantly different from zero, which suggests that states with more Wal-Mart stores actually have significantly higher levels of five-to-nine-employee establishments.

Dean and Sobel conclude

Our research suggests that the popular belief that Wal-Mart has a significant negative effect on the size of the mom-and-pop business sector of the United States economy is statistically unfounded. After examining a plethora of different measures of small business activity and growth, examining both time series and cross-section data, and employing different geographic levels of data and different econometric techniques, it can be firmly concluded that Wal-Mart has had no significant impact on the overall size and growth of U.S. small business activity.

(HT: Carpe Diem)

Update: The visible hand in economics asks Could Wal-mart help small business?