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Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel

  • Cristea, Anca D.

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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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 84 (2011)
Issue (Month): 2 (July)
Pages: 207-220

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Handle: RePEc:eee:inecon:v:84:y:2011:i:2:p:207-220
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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