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Relationship Stickiness, International Trade, and Economic Uncertainty

Author

Listed:
  • Julien Martin
  • Isabelle Mejean
  • Mathieu Parenti

Abstract

This paper examines how the degree of stickiness in business relationships influences the real impact of aggregate uncertainty. We first develop a novel index of relationship stickiness (RS) for more than 5,000 HS6 products based on the duration of firm-to-firm trade. The RS measure is derived from a stylized search model in which a higher degree of stickiness implies a lower probability of switching and longer firm-to-firm trade relationships, conditional on match quality. Relationship stickiness shapes the dynamics of firm-to-firm relationships in response to uncertainty shocks. Uncertainty shocks induce a significant and larger decrease in the rate at which new firm-to-firm relationships are formed in high-RS product categories. The relationship between uncertainty and separation rates also varies along the distribution of RS indices, the probability of a trade relationship ending being significantly reduced in sticky-product markets in uncertain times. These results provide evidence that trade of sticky products is characterized by wait-and-see behaviors during uncertainty episodes.

Suggested Citation

  • Julien Martin & Isabelle Mejean & Mathieu Parenti, 2021. "Relationship Stickiness, International Trade, and Economic Uncertainty," Working Papers ECARES 2021-03, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/317363
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