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Longevity and the value of trade relationships

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  • Monarch, Ryan
  • Schmidt-Eisenlohr, Tim

Abstract

More than 80 percent of U.S. imports occur in preexisting firm-to-firm relationships, and disruptions to them can have large and long-lasting effects. Using U.S. Census data, this paper shows that as importers and their suppliers transact repeatedly, traded quantities and survival probabilities rise. We develop a general equilibrium trade model with relationship dynamics that is consistent with these facts. The quantification implies that long-term relationships are substantially more valuable to firms than new relationships, with wide variation across source countries. Losing relationship capital is costly for an economy, with disruptions to relationships causing notably lower levels of consumption and trade in the short- to medium term.

Suggested Citation

  • Monarch, Ryan & Schmidt-Eisenlohr, Tim, 2023. "Longevity and the value of trade relationships," Journal of International Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:inecon:v:145:y:2023:i:c:s0022199623001289
    DOI: 10.1016/j.jinteco.2023.103842
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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