Working Paper

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.

Keywords: International Trade; Firm Relationships; Learning; Trade Dynamics;

JEL Classification: F11; F14; L14; D22;

https://doi.org/10.17016/IFDP.2017.1218

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2017-11-29

Number: 1218

Pages: 61 pages