Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel

• Published in: Journal of international economics Vol. 84; no. 2; pp. 207 - 220
• Main Author: Cristea, Anca D.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.07.2011; Elsevier; Elsevier Sequoia S.A
• Series: Journal of International Economics
• Subjects: Air travel; Airlines; Business practices; Business travel; Econometric models; Econometrics; Exports; Face-to-face communication; Fixed export cost; Foreign markets; International trade; Meetings; Relationship intensity; State exports; State exports Air travel Fixed export cost Face-to-face communication Relationship intensity Tacit knowledge; Studies; Tacit knowledge; Trade relations; U.S.A; Vendor supplier relations; United States > US; R4; Relationship intensity; O3; Fixed export cost; Face-to-face communication; State exports; F1; Air travel; Tacit knowledge
• ISSN: 0022-1996; 1873-0353
• DOI: 10.1016/j.jinteco.2011.02.003

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. ► Examine the importance of buyer­seller interactions for international trade. ► Model an exporter’s decision to undertake business meetings based on the complexity of the good traded, the market potential of the importing country, and the cost of international travel. ► Measure buyer­seller interactions using U.S. state level data on business­class air travel, and exploit cross­state variation to identify the results. ► Find robust evidence that the demand for business meetings is directly related to the volume and composition of exports in terms of differentiated goods. ► Across sectors, R&D intensive manufactures and goods facing contractual frictions are most dependent on buyer­seller interactions.