Learning and the Value of Trade Relationships
Abstract: This paper quantifies the value of importer-exporter relationships. We show that almost 80 percent of U.S. imports take place in pre-existing relationships, with sizable heterogeneity across countries, and show that traded quantities and survival increase as relationships age. We develop a two-country general equilibrium trade model with learning that is consistent with these facts. A model-based measure of relationship value explains survival during the 2008-09 crisis. Knowledge accumulated within long-term relationships is quantitatively important: wiping out all memory from previous interactions, on average, reduces consumption by 5 percent on impact and by 48 percent over the transition back to steady state.
File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1218.pdf
Part of Series: International Finance Discussion Papers
Publication Date: 2017-11-29
Pages: 61 pages