Trade relationships during and after a crisis

TL;DR

This paper examines how firms' international trade relationships are affected by an exogenous weather shock, revealing that less-exposed firms tolerate disruptions while more-exposed firms are more likely to exit the market.

Contribution

It provides empirical evidence on the impact of idiosyncratic shocks on trade relationships and firm exit decisions during a crisis.

Findings

Less-exposed firms tolerate delays without terminating relationships.

Greater exposure leads to higher partner turnover and market exit.

Disruptions can cause persistent changes in firms' trading portfolios.

Abstract

I study how firms adjust to temporary disruptions in international trade relationships organized through relational contracts. I exploit an extreme, plausibly exogenous weather shock during the 2010-11 La Ni\~na season that restricted Colombian flower exporters' access to cargo terminals. Using transaction-level data from the Colombian-U.S. flower trade, I show that importers with less-exposed supplier portfolios are less likely to terminate disrupted relationships, instead tolerating shipment delays. In contrast, firms facing greater exposure experience higher partner turnover and are more likely to exit the market, with exit accounting for a substantial share of relationship separations. These findings demonstrate that idiosyncratic shocks to buyer-seller relationships can propagate into persistent changes in firms' trading portfolios.