International Finance Discussion Papers (IFDP)

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November 2017

Learning and the Value of Trade Relationships

Ryan Monarch and Tim Schmidt-Eisenlohr

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

DOI: https://doi.org/10.17016/IFDP.2017.1218

PDF: Full Paper

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Last Update: January 09, 2020