Posted: 5 Jun 2011 Last revised: 27 Jul 2012
Date Written: February 1, 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
Suggested Citation: Suggested Citation
Cristea, Anca D., Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel (February 1, 2011). Journal of International Economics, Vol. 84, No. 2, 2011. Available at SSRN: https://ssrn.com/abstract=1857970