Trade Relationships, Bargaining and Export Dynamics

Mirko Abbritti, Ivan Kim, Tommaso Trani
Authors registered in the RePEc Author Service: Tommaso Trani and Mirko Abbritti

No 04/2020, NCID Working Papers from Navarra Center for International Development, University of Navarra

Abstract: In the data, emerging market economies’ exports tend to grow after real devaluations, but even when these are large, the rise in export revenues is low and delayed. We examine this fact by in- troducing long-term trade relationships and bargaining into a standard small open economy model. Both domestic exporters and foreign importers need to spend time and resources to establish trade relationships. Once a relationship is formed, export prices and quantities are decided through bilat- eral bargaining. The presence of search frictions and bargaining alters the transmission mechanism of shocks. The long-term nature of trade relationships reduces the expenditure-switching effect re- sulting from exchange rate fluctuations and the allocative role of intermediate export prices. These elements improve the ability of the model to explain export growth following a large devaluation as well as other second moments. Moreover, our sensitivity analysis suggests that higher exporters’ bargaining power or lower trade adjustment costs would make an economy more resilient to interest rate shocks.

Keywords: Search and Matching; Price Bargaining; Real Exchange Rate; Devaluation; Export Dynamics. (search for similar items in EconPapers)
JEL-codes: E32 F31 F41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2020-06
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac and nep-opm
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