Longevity and the Value of Trade Relationships

Ryan Monarch, Tim Schmidt-Eisenlohr

Journal of International Economics, November 2023

Ryan Monarch

Economics Department

Trade, Development, and Political Economy Working Group

International Affairs

Trade

United States

Journal of International Economics

Ryan Monarch

More than 80 percent of U.S. imports occur in preexisting firm-to-firm relationships, and disruptions to them can have large and long-lasting effects. Using U.S. Census data, this paper shows that as importers and their suppliers transact repeatedly, traded quantities and survival probabilities rise. We develop a general equilibrium trade model with relationship dynamics that is consistent with these facts.

The quantification implies that long-term relationships are substantially more valuable to firms than new relationships, with wide variation across source countries. Losing relationship capital is costly for an economy, with disruptions to relationships causing notably lower levels of consumption and trade in the short- to medium term.