Working Paper: CEPR ID: DP15609
Authors: Julien Martin; Isabelle Mejean; Mathieu Parenti
Abstract: 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.
Keywords: firm-to-firm trade; relationship specificity; uncertainty
JEL Codes: F14; F44; D22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High macroeconomic uncertainty (D89) | Decrease in trade (F19) |
| Decrease in net creation of firm-to-firm relationships (L14) | Decrease in trade (F19) |
| High macroeconomic uncertainty (D89) | Reduction in net creation of firm-to-firm relationships (L14) |
| High macroeconomic uncertainty (D89) | Higher separation rates in less sticky markets (F12) |
| Higher separation rates in less sticky markets (F12) | Mute effect in stickier markets (G19) |