Learning and the Value of Trade Relationships

64 Pages Posted: 5 Dec 2017

See all articles by Ryan Monarch

Ryan Monarch

Federal Reserve Board

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: 2017-11-29

Abstract

This paper quantifies the value of importer-exporter relationships. We show that almost 80 percent of U.S. imports take place in pre-existing relationships, with sizable heterogeneity across countries, and show that traded quantities and survival increase as relationships age. We develop a two-country general equilibrium trade model with learning that is consistent with these facts. A model-based measure of relationship value explains survival during the 2008-09 crisis. Knowledge accumulated within long-term relationships is quantitatively important: wiping out all memory from previous interactions, on average, reduces consumption by 5 percent on impact and by 48 percent over the transition back to steady state.

Keywords: International Trade, Firm Relationships, Learning, Trade Dynamics

JEL Classification: F11, F14, L14, D22

Suggested Citation

Monarch, Ryan and Schmidt-Eisenlohr, Tim, Learning and the Value of Trade Relationships (2017-11-29). FRB International Finance Discussion Paper No. 1218. Available at SSRN: https://ssrn.com/abstract=3080857 or http://dx.doi.org/10.17016/IFDP.2017.1218

Ryan Monarch (Contact Author)

Federal Reserve Board ( email )

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

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System ( email )

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

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