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Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel

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  • Cristea, Anca D.

Abstract

International trade has become increasingly dependent on the transmission of complex information, often realized via face-to-face communication. This paper provides novel evidence for the importance of in-person business meetings in international trade. Interactions among trade partners entail a fixed cost of trade, but at the same time they generate relationship capital, which adds bilateral specific value to the traded products. Differences in the face-to-face communication intensity of traded goods, bilateral travel costs and foreign market size determine the optimal amount of interaction between trade partners. Using U.S. state level data on international business-class air travel as a measure of in-person business meetings, I find robust evidence that the demand for business-class air travel is directly related to volume and composition of exports in differentiated products. I also find that trade flows in R&D intensive manufactures and goods facing contractual frictions are most dependent on face-to-face meetings. The econometric identification exploits the cross-state variation in bilateral exports and business-class air travelers by foreign country and time period, circumventing any spurious correlation induced by cross-country differences driving aggregate travel and trade patterns.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30347.

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Date of creation: Feb 2011
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Handle: RePEc:pra:mprapa:30347

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Keywords: state exports; air travel; fixed export cost; face-to-face communication; relationship intensity; tacit knowledge;

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Cited by:
  1. Sheard, Nicholas, 2014. "Airports and urban sectoral employment," Journal of Urban Economics, Elsevier, vol. 80(C), pages 133-152.
  2. Galina Hale & Christopher Candelaria & Julián Caballero & Sergey Borisov, 2013. "Bank Linkages and International Trade," IDB Publications 83660, Inter-American Development Bank.
  3. Alderighi Marco & Gaggero Alberto A., 2012. "Air Accessibility and Export Capability of the Italian Manufacturing Industry," L'industria, Società editrice il Mulino, Società editrice il Mulino, issue 4, pages 635-662.
  4. Yao Li, 2009. "Borders and Distance in Knowledge Spillovers: Dying over Time or Dying with Age? - Evidence from Patent Citations," CESifo Working Paper Series 2625, CESifo Group Munich.
  5. Nicholas Sheard, 2012. "The effect of air transport on the production of goods and services," ERSA conference papers ersa12p429, European Regional Science Association.
  6. Ayumu Tanaka, 2013. "Geographic Concentration of Foreign Visitors to Japan," Discussion papers, Graduate School of Economics Project Center, Kyoto University e-12-013, Graduate School of Economics Project Center, Kyoto University.
  7. Blonigen, Bruce A. & Cristea, Anca D., 2012. "Airports and Urban Growth: Evidence from a Quasi-Natural Policy Experiment," MPRA Paper 40304, University Library of Munich, Germany.
  8. Cristea, Anca & Hillberry, Russell & Mattoo, Aaditya, 2014. "Open skies over the Middle East," Policy Research Working Paper Series, The World Bank 6937, The World Bank.
  9. Sheard, Nicholas, 2012. "Airports and the Production of Goods and Services," Research Papers in Economics, Stockholm University, Department of Economics 2012:7, Stockholm University, Department of Economics, revised 17 Jan 2013.
  10. Yilmazkuday, Demet & Yilmazkuday, Hakan, 2014. "The role of direct flights in trade costs," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 179, Federal Reserve Bank of Dallas.
  11. Nune Hovhannisyan & Wolfgang Keller, 2011. "International Business Travel: An Engine of Innovation?," NBER Working Papers 17100, National Bureau of Economic Research, Inc.
  12. Marco Alderighi, 2013. "Air accessibility and the export of Italian manufacture in Europe: Evidence at regional level," ERSA conference papers ersa13p1304, European Regional Science Association.

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