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Relationship Stickiness, International Trade, and Economic Uncertainty

Julien Martin (), Isabelle Mejean and Mathieu Parenti ()

No 2021-03, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: This paper examines how the degree of stickiness in business relationships influences the real impact of aggregate uncertainty. We first develop a novel index of relationship stickiness (RS) for more than 5,000 HS6 products based on the duration of firm-to-firm trade. The RS measure is derived from a stylized search model in which a higher degree of stickiness implies a lower probability of switching and longer firm-to-firm trade relationships, conditional on match quality. Relationship stickiness shapes the dynamics of firm-to-firm relationships in response to uncertainty shocks. Uncertainty shocks induce a significant and larger decrease in the rate at which new firm-to-firm relationships are formed in high-RS product categories. The relationship between uncertainty and separation rates also varies along the distribution of RS indices, the probability of a trade relationship ending being significantly reduced in sticky-product markets in uncertain times. These results provide evidence that trade of sticky products is characterized by wait-and-see behaviors during uncertainty episodes.

Keywords: Relationship Stickiness; International Trade; Economic Uncertainty (search for similar items in EconPapers)
Pages: 49 p.
Date: 2021-01
New Economics Papers: this item is included in nep-int
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Working Paper: Relationship stickiness, international trade, and economic uncertainty (2020) Downloads
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