A Search Cost Perspective on Duration of Trade
AbstractMore than half of all US import relationships begin with less than $10,000 annually. The median relationship is observed to last just one year. The incidence and duration of these relationships are consistent with a matching model of international trade. The preponderance of small starting relationships reveals uncertainty present in formation of trade relationships. Initial size, reliability, and search costs matter and play an important role. Larger initial purchase results in longer relationships. Higher reliability and lower search costs lead to larger initial purchases and longer relationships.
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