Success after Failure : The Recovery Margin of Trade in U.S. Imports

Mardi | 2015-07-08
Sully 5, 11h15-12h15


The recovery of failed trading relationships (identified as unique exporter-inporter-HS6 pairings) after a period of dormancy is puzzling because of evidence in the trade literature about hysteresis in trade and the existence of significant sunk costs associated with both establishing new trade relationships (NT) and recovering dormant trading relationships (RT). The quality of trade recovery is a very important question as there is evidence in the literature that the quality of the traded goods and trading relationships impact a country’s export performance and its overall growth trajectory. We provide new evidence that the characteristics of export gaps impact the quality of export recovery using highly disaggregated, 6-digit HS level bilateral data on exports to the US. We find some support for the frontier based theory of competition and innovation -that quality upgrading upon trade recovery occurs in industries that are closer to the technology frontier but not in those that are more distant. However, for any given distance to the technology frontier, the duration of trade gaps adversely impacts quality upgrading.