DP15609 Relationship stickiness, international trade, and economic uncertainty

Author(s): Julien Martin, Isabelle Mejean, Mathieu Parenti
Publication Date: December 2020
Date Revised: May 2021
Keyword(s): firm-to-firm trade, relationship specificity, uncertainty
JEL(s): D22, F14, F44
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15609

We study how stickiness in business relationships influences the trade impact of aggregate uncertainty. We first develop a product-level index of relationship stickiness estimated from firm-to-firm trade data. The measure is grounded into a search model in which more stickiness implies longer firm-to-firm trade relationships, conditional on match quality. We then show that relationship stickiness shapes the dynamics of trade in response to uncertainty shocks. Episodes of high macroeconomic uncertainty are associated with less trade, mostly driven by a decrease in the net creation of firm-to-firm relationships. Such adjustments are significantly more pronounced among the most sticky product categories.