Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel
Anca D. Cristea
University of Oregon - Department of Economics
February 1, 2011
Journal of International Economics, Vol. 84, No. 2, 2011
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.
Keywords: state exports, air travel, fixed export cost, face-to-face communication, relationship intensity
JEL Classification: F1, R4
Date posted: June 5, 2011 ; Last revised: July 27, 2012
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