Longevity and the value of trade relationships

Ryan Monarch and Tim Schmidt-Eisenlohr

Journal of International Economics, 2023, vol. 145, issue C

Abstract: More than 80 percent of U.S. imports occur in preexisting firm-to-firm relationships, and disruptions to them can have large and long-lasting effects. Using U.S. Census data, this paper shows that as importers and their suppliers transact repeatedly, traded quantities and survival probabilities rise. We develop a general equilibrium trade model with relationship dynamics that is consistent with these facts. The quantification implies that long-term relationships are substantially more valuable to firms than new relationships, with wide variation across source countries. Losing relationship capital is costly for an economy, with disruptions to relationships causing notably lower levels of consumption and trade in the short- to medium term.

Keywords: International trade; Firm relationships; Learning; Trade dynamics (search for similar items in EconPapers)
JEL-codes: D22 F11 F14 L14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001289

DOI: 10.1016/j.jinteco.2023.103842

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