Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel

Cristea, Anca D. (2011): Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel. Forthcoming in: Journal of International Economics

Abstract

International trade has become increasingly dependent on the transmission of complex information, often realized via face-to-face communication. This paper provides novel evidence for the importance of in-person business meetings in international trade. Interactions among trade partners entail a fixed cost of trade, but at the same time they generate relationship capital, which adds bilateral specific value to the traded products. Differences in the face-to-face communication intensity of traded goods, bilateral travel costs and foreign market size determine the optimal amount of interaction between trade partners. Using U.S. state level data on international business-class air travel as a measure of in-person business meetings, I find robust evidence that the demand for business-class air travel is directly related to volume and composition of exports in differentiated products. I also find that trade flows in R&D intensive manufactures and goods facing contractual frictions are most dependent on face-to-face meetings. The econometric identification exploits the cross-state variation in bilateral exports and business-class air travelers by foreign country and time period, circumventing any spurious correlation induced by cross-country differences driving aggregate travel and trade patterns.

• Item Type: MPRA Paper
• Language: English
• Keywords: state exports; air travel; fixed export cost; face-to-face communication; relationship intensity; tacit knowledge
• Subjects: R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics; F - International Economics > F1 - Trade; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

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