Learning and the Value of Relationships in International Trade

56 Pages Posted: 9 Mar 2016

See all articles by Ryan Monarch

Ryan Monarch

Federal Reserve Board

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System

Date Written: January 27, 2016

Abstract

How valuable are long-term supplier relationships? To address this question, this paper explores relationships between U.S. importers and their suppliers abroad. We first establish several facts: almost half of U.S. imports are in relationships three years or older, relationship survival and traded quantity increase as a relationship ages, and long-term relationships were more resilient in the 2008/9 financial crisis. Based on these findings, we present a model of importer learning and calibrate it using our data. We estimate large differences in the value of relationships across countries. Counterfactuals show that relationships are central to trade flows following external shocks.

Keywords: international trade, firm relationships, learning, institutions

JEL Classification: F11, F14, L14, D22

Suggested Citation

Monarch, Ryan and Schmidt-Eisenlohr, Tim, Learning and the Value of Relationships in International Trade (January 27, 2016). CESifo Working Paper Series No. 5724. Available at SSRN: https://ssrn.com/abstract=2743123

Ryan Monarch

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Tim Schmidt-Eisenlohr (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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