Working Paper: NBER ID: w26314
Authors: Michael B. Devereux; Wei Dong; Ben Tomlin
Abstract: Using highly-disaggregated transaction-level trade data, we document the importance of new firm-level trade partner relationships and the addition of new products to existing relationships in driving long-run import flows. Moreover, we find that these margins are sensitive to movements in the exchange rate. We rationalize these findings in a model of international trade with endogenous matching between heterogenous importers and exporters. Simulations of the model highlight a new channel through which exchange rate movements can affect trade—through the short-run formation of new trade relationships and the range of products traded within relationships, which can impact long-run flows.
Keywords: trade flows; exchange rates; importers; exporters; products
JEL Codes: F1; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Formation of new buyer-seller relationships (L14) | Long-run import flows (F10) |
| Addition of new products to existing relationships (L14) | Long-run import flows (F10) |
| Exchange rate fluctuations (F31) | Short-run adjustments in buyer-seller relationships (L14) |
| Exchange rate fluctuations (F31) | Short-run adjustments in product offerings (D25) |
| Short-run adjustments in buyer-seller relationships (L14) | Long-run trade impacts (F69) |
| Short-run adjustments in product offerings (D25) | Long-run trade impacts (F69) |
| Appreciation of the Canadian dollar (F31) | Increase in the number of trade partners (F10) |
| Appreciation of the Canadian dollar (F31) | Increase in the number of products per relationship (L14) |